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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-28292
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BANK PLUS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-4571410
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
4565 COLORADO BOULEVARD 90039
LOS ANGELES, CALIFORNIA (Zip Code)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (818) 549-3116
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant, as of March 23, 2000, was $37,065,689.
As of March 23, 2000, Registrant had outstanding 19,441,886 shares of
Common Stock, par value $.01 per share.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement relating to the Registrant's
2000 Annual Meeting of Stockholders are incorporated by reference in Part III
hereof.
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BANK PLUS CORPORATION
1999 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
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Glossary of Defined Terms.................................................................. ii
PART I
Item 1. Business................................................................................... 1
General.................................................................................... 1
Recent Developments........................................................................ 2
Retail Financial Services - Core Bank Operations........................................... 6
Lending Activities......................................................................... 7
Loan Servicing............................................................................. 8
Credit Administration...................................................................... 10
Investments................................................................................ 11
Borrowings................................................................................. 11
Competition................................................................................ 12
Employees.................................................................................. 12
Regulation and Supervision................................................................. 13
Item 2. Properties................................................................................. 24
Item 3. Legal Proceedings.......................................................................... 25
Item 4. Submission of Matters to a Vote of Security Holders........................................ 29
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters.................. 29
Item 6. Selected Financial Data.................................................................... 31
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations...... 33
Forward-looking Statements................................................................. 33
Results of Operations...................................................................... 33
Net Interest Income........................................................................ 37
Income Taxes............................................................................... 38
Financial Condition........................................................................ 40
Regulatory Capital Compliance.............................................................. 57
Liquidity.................................................................................. 58
Asset/Liability Management and Market Risk................................................. 62
Year 2000.................................................................................. 66
Recent Accounting Pronouncements........................................................... 67
Item 8. Financial Statements and Supplementary Data................................................ 67
Item 9. Change in and Disagreements with Accountants on Accounting and Financial Disclosure........ 67
PART III
Item 10. Directors and Executive Officers of the Registrant......................................... 68
Item 11. Executive Compensation..................................................................... 68
Item 12. Security Ownership of Certain Beneficial Owners and Management............................. 68
Item 13. Certain Relationships and Related Transactions............................................. 68
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K........................... 69
Signatures................................................................................. 71
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BANK PLUS CORPORATION
GLOSSARY OF DEFINED TERMS
The following defined terms are used throughout the Company's Annual Report on
Form 10-K:
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DEFINED TERM DESCRIPTION
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ACES........................ FNMA's Alternative Credit Enhancement Structure
Acquisition S-4............. Registration Statement on Form S-4
ADC......................... American Direct Credit, LLC
AFS......................... available for sale
ALCO........................ Asset Liability Committee
ALLL........................ allowance for loan and lease losses
ARMs........................ adjustable rate mortgages
ATM......................... automated teller machine
BHCA........................ Bank Holding Company Act
Bank Plus................... Bank Plus Corporation
BIF......................... Bank Insurance Fund
BPCS........................ Bank Plus Credit Services Corporation
CalPERS..................... California Public Employee's Retirement System
CDs......................... certificates of deposit
CERCLA...................... Comprehensive Environmental Response, Compensation and Liability Act
of 1980
Citadel..................... Citadel Holding Corporation
CMO......................... collateralized mortgage obligation
Coast....................... Coast Federal Bank, FSB
COFI........................ Eleventh District Cost of Funds Index
Company..................... Bank Plus, Fidelity and Gateway
CRA......................... Community Reinvestment Act
Direct Furniture............ Direct Furniture, Inc.
EGRPRA...................... Economic Growth and Regulatory Paperwork Reduction Act
EPS......................... earnings per share
Exchange Offer.............. Exchange offer of Bank Plus Senior Notes for Fidelity's Series A
Preferred Stock, as consummated on July 18, 1997
FAMCO....................... First Alliance Mortgage Company
FASB........................ Financial Accounting Standards Board
FDIA........................ Federal Deposit Insurance Act
FDIC........................ Federal Deposit Insurance Corporation
FDICIA...................... Federal Deposit Insurance Corporation Improvement Act of 1991
FFIEC....................... Federal Financial Institutions Examinations Council
FHA......................... Federal Housing Administration
FHLB........................ Federal Home Loan Bank
FHLB advances............... ARMs and variable rate borrowings from the FHLB system
FHLMC....................... Federal Home Loan Mortgage Corporation
FICO........................ Fair Isaac Company
FICO Debt................... Financing Corporation debt obligations
Fidelity or the Bank........ collectively, Fidelity Federal Bank, A Federal Savings Bank and its
subsidiaries
Financial Services
Modernization Act......... Gramm-Leach-Bliley Act of 1999
FIRREA...................... Financial Institutions Reform, Recovery, and Enforcement Act of 1989
FNMA........................ Federal National Mortgage Association
(CONTINUED)
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GLOSSARY OF DEFINED TERMS--(CONTINUED)
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DEFINED TERM DESCRIPTION
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FRB......................... Board of Governors of the Federal Reserve System
FSLIC....................... Federal Savings and Loan Insurance Corporation
FTEs........................ full-time equivalent employees
GAAP........................ Generally Accepted Accounting Principles
Gateway..................... Gateway Investment Services, Inc.
GNMA........................ Government National Mortgage Association
Hancock..................... Hancock Savings Bank, FSB
HOLA........................ Home Owners' Loan Act of 1933, as amended
IMCR........................ Individual Minimum Capital Requirement
Instant Reserve............. overdraft protection for checking account customers
IRC......................... Internal Revenue Code
LGS......................... loan grading system
LIBOR....................... London Interbank Offered Rate
MBS......................... mortgage-backed securities
MMG......................... MMG Direct, Inc.
NASD........................ National Association of Securities Dealers, Inc.
Nasdaq...................... Nasdaq National Market
Nationwide.................. Nationwide Capital Company, L.L.C.
NOL......................... net operating loss
NPAs........................ nonperforming assets
NPLs........................ Nonaccruing loans
NPV......................... Net portfolio value
OACFV....................... Option adjusted cash flow valuation
OTS......................... Office of Thrift Supervision
Plan........................ Accelerated Asset Resolution Plan
Program..................... agreements with FAMCO and its affiliates to establish a secured
credit card program
PCA......................... Prompt Corrective Action
QTL......................... Qualified Thrift Lender
Renzi....................... Renzi Co. LLC
REO......................... Real estate owned
RICO........................ Racketeer Influenced and Corrupt Organizations Act
SAIF........................ Savings Association Insurance Fund
SEC......................... Securities and Exchange Commission
Senior Notes................ Bank Plus' 12% Senior Notes due July 18, 2007
SLUSA....................... Security Litigation Reform Standards Act of 1998
Preferred Stock............. Fidelity's 12% Noncumulative Exchangeable Perpetual Preferred Stock,
Series A
SFAS........................ Statement of Financial Accounting Standards
Stock Option Plan........... Stock Option and Equity Incentive Plan
SVAs........................ Specific valuation allowances
Systems..................... Computer software programs, systems and devices
TDR......................... troubled debt restructuring
TFR......................... Thrift Financial Report
2000 Proxy Statement........ the Company's Proxy Statement for its 2000 Annual Meeting of
Stockholders
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PART I
ITEM 1. BUSINESS
BANK PLUS CORPORATION
GENERAL
Bank Plus Corporation ("Bank Plus"), through its wholly-owned subsidiaries,
Fidelity Federal Bank, A Federal Savings Bank, and its subsidiaries
(collectively "Fidelity" or the "Bank"), and Gateway Investment Services, Inc.
("Gateway") a National Association of Securities Dealers, Inc. ("NASD")
registered broker/dealer, (collectively, the "Company"), offers a broad range of
consumer financial services, including demand and term deposits, uninsured
investment products, including mutual funds, and annuities and loans. Fidelity
operates through 36 full-service branches, 35 of which are located in Southern
California, principally in Los Angeles and Orange counties.
Certain statements included in this Annual Report on Form 10-K, including
without limitation statements containing the words "believes", "anticipates",
"intends", "expects" and words of similar import, constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act.
Such forward-looking statements involve known and unknown risks, uncertainties
and other factors that may cause the actual results, performance or achievements
of Bank Plus and Fidelity to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. A number of other factors may have a material adverse effect on the
Company's financial performance. These factors include a national or regional
economic slowdown or recession which increases the risk of defaults and credit
losses; movements in market interest rates that reduce our margins or the fair
value of the financial instruments we hold; restrictions imposed on the Bank's
operations by regulators such as a prohibition on the payment of dividends to
Bank Plus; failure of regulatory authorities to issue approvals or non-objection
to material transactions involving the Bank; actions by the Bank's regulators
that could adversely affect the Bank's capital levels; an increase in the number
of customers seeking protection under the bankruptcy laws which increases the
amount of charge-offs; the effects of fraud or other contract breaches by third
parties or customers; the effectiveness of the Company's collection efforts; the
outcome of pending and future litigation; the inability to achieve the financial
goals in Bank Plus' strategic plan; the inability to successfully implement
planned systems conversions and the inability to use the operating loss
carryforwards of the Company. Given these uncertainties, undue reliance should
not be placed on such forward-looking statements. Bank Plus disclaims any
obligation to update any such factors or to publicly announce the results of any
revisions to any of the forward-looking statements included herein to reflect
future events or developments.
The Company views its business as consisting of two reportable segments;
core bank operations and credit card operations. Each of these operations, like
those of other financial institutions, are significantly influenced by general
economic conditions and interest rates, by the monetary, fiscal and regulatory
policies of the federal government and by the policies of financial institution
regulatory authorities. The core bank operations are also significantly
influenced by the relative strength of the California real estate market.
Core Bank Operations: The principal business activities of this segment are
attracting deposit funds from the general public and other institutions,
originating and investing in investment securities and real estate related
assets, including mortgage loan and mortgage-backed securities, and selling
uninsured investment products. This segment's primary sources of revenue are
interest income earned on real estate related assets, investment securities and
funding provided to the credit card operations, fees earned in connection with
loans and deposits and fees earned from the sale of uninsured investment
products. This segment's major expenses are interest incurred on deposits and
borrowings, provisions for estimated loan losses, retail branch system costs,
mortgage servicing and origination costs and executive and administrative
expenses.
Deposits of the core bank operations are highly concentrated in Los Angeles
and Orange counties. The retail branches held total deposits of $2.5 billion at
December 31, 1999. At December 31, 1999, the core bank operation's gross
mortgage loan portfolio aggregated $2.0 billion, 66% of which was secured by
residential properties containing 5 or more units, 28% of which was secured by
residential properties containing 1 to 4 units and 6% of which was secured by
commercial and other property. At that same date, 94% of the Bank's mortgage
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loans consisted of adjustable-rate mortgages. The investment portfolio of the
core bank operations, which primarily consisted of mortgage-backed securities,
totaled $0.3 billion at December 31, 1999.
Credit card operations: The principal business activities of this segment
are servicing the outstanding credit card accounts and managing the credit risk
associated with the credit card portfolio. Since the first quarter of 1999,
there have been no material new originations of credit card accounts. This
segment's primary sources of revenue are interest income earned on the credit
card balances and fees earned on credit card accounts, including acceptance and
annual fees, late fees and interchange fees. This segment's principal expenses
are interest expense from funding provided by the core bank operations,
provisions for estimated loan losses and costs of servicing the portfolio,
including third party processing charges.
The credit card operation's credit card portfolio totaled $210.6 million at
December 31, 1999. Funding for the credit card operations is provided by the
core bank operations.
The principal executive offices of Bank Plus and Fidelity are located at
4565 Colorado Boulevard, Los Angeles, California 90039, telephone number (818)
549-3116.
RECENT DEVELOPMENTS
1999 FINANCIAL RESULTS
In 1999, the Company's net losses of $24.9 million consisted of $59.7
million of net losses from the credit card operations offset by $34.8 million of
net earnings from the core bank operations. The net losses from the credit card
operations were primarily due to provisions for estimated loan losses resulting
from the high delinquency levels and charge-offs in the credit card loan
portfolio. The net earnings from the core bank operations, which more than
doubled from the 1998 net earnings of $16.2 million, benefited from a $10.5
million reduction in operating expenses and a $5.9 million gain on sale of two
branches during the third quarter of 1999. The $10.5 million decrease in
operating expenses was the result of the implementation of the revised strategic
plan in 1999.
CORE BANK OPERATIONS
During 1997 and 1998, a number of business initiatives outside of the
existing retail branch system were pursued. These included a financial education
program for members of the California Public Employee's Retirement System
("CalPERS"), electronic commerce activities, a planned name change, an indirect
auto lending program and a mall branch strategy. As a result of the
disappointing results of these programs and of the credit card operations,
changes were made in the Company's executive management and in the core bank
operations strategic plan during the fourth quarter of 1998.
Under this strategic plan, the core bank operations are focused on the
retail branch system and the establishment of mortgage origination operations.
As a consequence of the Bank's efforts to augment its regulatory capital ratios,
the core bank operations total assets decreased by $1.3 billion from June 30,
1998 to December 31, 1999. This reduction in total assets was achieved by
utilizing the proceeds from scheduled and unscheduled principal payments in the
mortgage loan and securities portfolios and from the sale of $120 million in
mortgage loans to payoff Federal Home Loan Bank ("FHLB") advances and fund the
sale of $125 million of deposits. In addition, a deposit repricing and
conversion program was implemented in the fourth quarter of 1998 to reduce the
amount of high balance certificates of deposit ("CDs") (accounts with balances
greater than $100,000) and reduce the overall cost of deposits. Since September
30, 1998, high balance CDs have decreased by $244.2 million and the cost of
deposits decreased from 4.78% at September 30, 1998 to 4.21% at December 31,
1999. During the 1999 third quarter, as a consequence of the deposit repricing
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and conversion program and the payoff of FHLB advances, the Bank's total cost of
funds fell below the Eleventh District Cost of Funds Index ("COFI"), for the
first time since the index was created. At December 31, 1999, the Bank's overall
cost of funds of 4.40% was 45 basis points below COFI.
CREDIT CARD OPERATIONS
The Company's credit card operations began in 1997. During 1998, the Bank
significantly increased its credit card portfolio. Beginning in the third
quarter of 1998, the Bank experienced increases in delinquencies and charge-offs
in excess of prior expectations. As a result of the deterioration of credit
quality in the credit card portfolio and operational problems encountered with
the Bank's third party marketers, the following actions were taken with respect
to each of the significant credit card programs:
o In October 1998, the Bank terminated its agreement with MMG Direct,
Inc. ("MMG") and no new accounts have been originated under the MMG
program since August 1998. In September 1999, the arbitrator in the
Bank's arbitration proceedings with MMG confirmed the termination of
the credit card marketing agreement with MMG and terminated MMG's
rights and interests in the MMG credit card portfolio.
o In November 1998, the Bank and American Direct Credit, LLC ("ADC")
entered into a settlement agreement in which they agreed to wind down
originations under the ADC program and terminate the related
agreement. Under the terms of the settlement agreement, all of ADC's
rights and interests in the ADC credit card portfolio were terminated.
No new accounts have been originated under the ADC program since the
first quarter of 1999.
o In December 1999, the Bank sold to Direct Furniture, Inc. ("Direct
Furniture") a 100% participation in the outstanding receivables under
the Direct Furniture program. The Bank will continue to issue new
accounts with Direct Furniture obligated to fund any future net
advances under the program. The Direct Furniture agreement will
terminate on the earlier of December 31, 2000 or such time that Direct
Furniture or its designee purchases the program from the Bank.
o In January 1999, First Alliance Corporation, the parent company of
First Alliance Mortgage Company ("FAMCO"), announced the
discontinuation of originations under its program with the Bank
primarily due to results that were lower than initially anticipated.
As a result, no new accounts have been originated under the program
since December 1998. On February 24, 2000, the term of the FAMCO
program agreements expired and the Bank notified FAMCO that it would
not be extending the term of the agreements. Under the terms of the
agreements, upon termination FAMCO or its designee is required to
purchase the outstanding accounts and receivables. FAMCO contends that
it has no obligation to purchase, or cause a designee to purchase all
of the outstanding accounts and receivables under the FAMCO program.
On March 23, 2000, First Alliance Corporation and its subsidiaries
(collectively "FACO") announced that they had filed voluntary
petitions under Chapter 11 of the United States Bankruptcy Code. It is
uncertain what effect the filing of the petition for bankruptcy will
have on FACO's obligations under the program agreements. If FACO does
not perform its obligations under the agreement, the Company may be
required to record a loss to the extent that estimated charge-offs
exceed the cash reserves held by the Company. As of February 29, 2000,
the balance of accounts and related cash reserves of this program were
$16.4 million and $2.7 million, respectively.
Even though the Company no longer originates new credit card accounts, it
continues to treat the credit card operations as an operating segment. As such,
the credit card balances are carried at their historical cost basis and loan
loss reserves have been established at a level equal to estimated charge-offs of
current account balances over the next twelve months. The carrying value of the
credit card balances less any established loan loss reserves is not intended to
represent the fair market value or liquidation value of the credit card
portfolios. Given the significant historical delinquencies and losses sustained
by these portfolios, the Company believes their liquidation value may be
significantly less than their net carrying value. In addition, the established
loan loss reserves do not include charge-offs that may occur after the next
twelve months nor charge-offs that may occur that relate to account activity
(e.g. purchases, interest and fees) that occurs subsequent to the current date.
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As part of its credit card operations, the Company opened a new credit card
processing center in Beaverton, Oregon in 1998 to provide customer service and
collections services for the Bank's credit card programs, services that would
otherwise be provided by third parties.
As a result of the high levels of delinquencies and charge-offs, it is
anticipated that, without a change in strategy, losses from the credit card
operations would continue to result in the Company reporting quarterly net
losses on a consolidated basis throughout 2000.
THE COMPANY'S BUSINESS PLAN
The Company has adopted a business plan for 2000 which seeks to resolve the
credit risk and litigation contingencies of the credit card operations, enhance
the profitability and value of the core bank operations and return the Company
to profitability on an overall basis. This business plan contains the following
main elements:
o proactive pursuit of the resolution of outstanding litigation
o the sale of up to $600 million in deposits
o utilization of the capital created from the deposit sales to mitigate
future credit card operating losses
o development of the commercial and residential mortgage lending
platforms
o enhancing the value of the Bank's retail deposit franchise
This business plan accelerates the Company's return to overall
profitability by utilizing capital raised from the sale of approximately
one-fourth of the Company's deposit base and retail branch system to mitigate
the impact of anticipated losses from the credit card operations on the
Company's future results of operations.
The Company created its business plan with guidance from the Office of
Thrift Supervision (the "OTS") regarding the extent of deposit sales which may
be approved by the OTS to facilitate the mitigation of future credit card
operating losses. The OTS has initially expressed no objections to the plan, but
the plan has not yet been formally submitted to the OTS for approval.
While the Company believes that it can achieve the objectives of the
business plan adopted, there are significant execution risks related to the
various transactions comprising the business plan. Accordingly there can be no
assurance that these objectives will be achieved.
PROACTIVE PURSUIT OF THE RESOLUTION OF OUTSTANDING LITIGATION
The business plan calls for management to aggressively defend outstanding
consumer and other litigation while at the same time proactively seeking to
resolve such matters on a basis consistent with the objective of increasing
shareholder value through the accelerated resolution of such litigation. The
Company continues to seek a settlement in its consumer litigation in the hope of
settling such claims at a cost which is attractive relative to the contingencies
and in a structure that will limit the assertion of future similar claims in
existing and other jurisdictions. There can be no assurances that such a
resolution will be reached.
SALE OF DEPOSITS
Fidelity has signed definitive agreements with First Federal Bank of
California and Jackson Federal Bank to sell a total of five of Fidelity's branch
offices with approximately $350 million in deposits. The branches to be
purchased by First Federal are located in Culver City and West Hollywood and
those to be purchased by Jackson Federal are located in Big Bear, Blue Jay and
Fullerton. The Company expects to fund the deposit sales with approximately $250
million in multifamily loans and the remainder in cash. The Bank has received
approval from the OTS for these transactions. The Bank anticipates that these
transactions will be completed in the first and second quarters of 2000.
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Fidelity is in the process of negotiating the sales of additional branches
with up to $250 million in deposits.
UTILIZATION OF CAPITAL TO MITIGATE FUTURE CREDIT CARD OPERATING LOSSES
The Company continues to evaluate options and negotiate potential
transactions to mitigate future credit card operating losses. The business plan
adopted by the Board contemplates the possibility of the sale of the MMG
portfolio and the designation of the ADC portfolio as held for sale. Based upon
indications from interested parties, the Company believes that the ADC portfolio
may not be saleable until the outstanding consumer litigation related to that
portfolio is satisfactorily resolved. The implementation of this strategy would
require the writedown of these portfolios to their actual and/or estimated
liquidation value which, based on indications of value received by the Company,
would require a significant charge against earnings. The sale of either of the
credit card portfolios is subject to the approval of the OTS. The OTS had
indicated to the Bank that they would not approve the sale of the credit card
portfolios if they did not consider the level of capital remaining after the
sale of either or both of the credit card portfolios to be appropriate.
The business plan anticipates that as a result of the proposed deposit sale
and credit card portfolio sale strategy, the Bank would become categorized as
"adequately capitalized" for regulatory capital purposes in 2000 as compared to
"well capitalized" as of the 1999 year-end, returning to the "well capitalized"
category in 2001.
DEVELOPMENT OF THE COMMERCIAL AND RESIDENTIAL MORTGAGE LENDING PLATFORMS
In 2000, the recently established major loan division will offer both
multifamily and commercial mortgage loans. The Company expects the majority of
originations will be held in portfolio to offset the ongoing run-off from the
existing mortgage portfolio and the balance will be sold into the secondary
market.
In addition to conforming loans, the residential loan division will offer A
minus and jumbo mortgage loans. In order to provide a full product line to its
customers, subprime mortgage loans, which will be originated exclusively for
sale into the secondary market, will also be offered. Subprime mortgage loans
will be originated and sold subject to a maximum warehouse of loans pending sale
of $10 million.
While the Company is satisfied with the performance of its existing
nonconforming mortgage portfolio, additions of subprime mortgage loans to that
portfolio have been discontinued due to the possibility of increased regulatory
capital requirements for these assets and the uncertainty of interest in these
assets by potential future acquirers of the Company.
ENHANCING THE VALUE OF THE BANK'S RETAIL DEPOSIT FRANCHISE
The value of the Bank's retail deposit franchise is derived from its
customer base, the location of its branches in the Los Angeles and Orange County
markets, the cost of its deposits, the existing and potential revenue streams
and its operating cost structure.
The business plan provides for the enhancement of the value of this
franchise through:
o Continued emphasis on quality customer service to retain current
customers and attract new customers who have either recently moved
into the Bank's market area or are dissatisfied with the service
provided by other institutions.
o Continuance of the current deposit pricing strategy which is expected
to maintain a differential between the Bank's cost of funds and COFI.
o Providing a broad array of deposit, investment, insurance and lending
products to customers while maintaining investment product sales
penetration rates that are among the highest in the nation.
o Implementing new core bank information systems and restructuring back
office functions. At the maturity of the Bank's current facilities
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management agreement covering its banking information systems, the
Bank will convert to systems provided by Aurum Technology, which was
formerly the financial services division of Electronic Data Systems
Corporation. This conversion, which will cost approximately $2.0
million and is expected to result in annual savings of approximately
$4.0 million beginning in the third quarter of 2000.
RETURN OF THE COMPANY TO PROFITABILITY ON AN OVERALL BASIS
The mitigation of future credit card operating losses and the improvement
in operating efficiency discussed above contribute to a business plan that,
while it projects a significant overall loss for the 2000 fiscal year, does
anticipate a return to overall profitability starting in the third quarter of
2000 with significantly reduced overall credit risk.
RETAIL FINANCIAL SERVICES -- CORE BANK OPERATIONS
Fidelity operates in Southern California through a network of 35
full-service branches which are located throughout three counties, but are
concentrated in Los Angeles and Orange counties. Average deposits at the Bank's
Southern California branches are $71.1 million. Deposits at 17 of the branches
exceed $60 million, with five of these branches having deposits in excess of
$100 million.
DEPOSITS
As is typical for a thrift, the Bank has relied heavily on CDs to provide
the bulk of its funding. At December 31, 1999, the composition of deposits are
19% transaction accounts and 81% CDs. All of the deposits were gathered through
the branch system as the Bank has no brokered deposits.
The Bank's transaction accounts consist of basic checking and savings
accounts, including money market accounts. The basic checking accounts are
primarily non-interest bearing accounts that charge monthly service fees. The
Bank's saving accounts bear interest at rates ranging from 2.00% to 4.00%. The
Bank offers CDs with maturities ranging from 1 month to 5 years generally
bearing interest rates at levels consistent with the Bank's primary competitors.
Historically, the Bank has offered CDs with higher interest rates and less
restrictive withdrawal and deposit features to increase its deposits. From time
to time, the Bank has also matched competitor's rates to retain maturing CDs.
During the fourth quarter of 1998, as part of the Bank's efforts to reduce its
overall funding costs and increase its regulatory capital ratios through the
reduction of its assets and liabilities, the Bank reduced the rates on selected
CDs to levels below that of its competitors. The greatest disparity in interest
rates from that of its competitors was for deposits in excess of $100,000. This
strategy resulted in a reduction in total deposits during the fourth quarter of
1998 and the first two quarters of 1999 of $413 million, 63% of which was in CDs
in excess of $100,000. This strategy and the lower level of general interest
rates during early 1999 also resulted in a reduction of the Bank's cost of
deposits from 4.78% at September 30, 1998 to 4.21% at December 31, 1999.
OTHER FINANCIAL SERVICES/INTEGRATED PLATFORM
The Company offers credit, investment and insurance products to its
customers through an "integrated platform" retail delivery strategy. This
strategy is designed to integrate the sales of investment products with
traditional banking products through a single sales force. Sales of investment,
credit and CD products take place in areas that are appropriately separated from
the deposit-taking areas of the branches. Employees offering alternative
investment products carry all appropriate NASD registrations and insurance
licenses. The Company has extensive disclosure policies in place to minimize any
possible confusion between the Federal Deposit Insurance Corporation (the
"FDIC") insured and non-insured products.
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Gateway is responsible for providing the retail bank distribution system
with a variety of investment products, such as mutual funds and fixed and
variable annuities. Insurance products are offered through Fidelity's insurance
agency subsidiary. Through Gateway, the Company has developed strategic
relationships with nationally known providers of investment and insurance
products. The use of these products serves to shift market acceptance risk from
the Company and to enhance product and name recognition through relationships
with nationally known entities, which also provide marketing support. For the
five years ended December 31, 1999 total sales of investment products through
the retail branch system were $164.9 million, $180.7 million, $159.8 million,
$118.1 million and $89.8 million, respectively.
LENDING ACTIVITIES
Historically, the Bank's lending activities consisted primarily of single
family and multifamily mortgage loan originations. In the third quarter of 1994,
the Bank closed its wholesale correspondent single family origination network
and its multifamily origination operations. Because of the efforts required to
resolve credit problems in its multifamily loan portfolio, to recapitalize the
Bank in 1995 and to reduce its operating expenses, no significant lending
activities occurred in 1995 and 1996. Beginning in 1997, and continuing through
1998, the Bank's lending activity was focused on consumer loan products, such as
credit cards and auto loans. In the third quarter of 1998, the Bank began
operations to acquire or originate nonconforming mortgage loans. In the fourth
quarter of 1999, the Bank began operations to originate multifamily and
commercial loans.
CORE BANK OPERATIONS
During the third quarter of 1998, the Bank established a nonconforming
mortgage loan division to acquire and originate nonconforming mortgage loans. In
the first quarter of 1999, Fidelity began offering its own conforming and
nonconforming mortgage loan products while continuing to offer the products of
third parties.
At December 31, 1999, the Bank's portfolio of nonconforming mortgage loans
totaled $96 million. These loans are expected to experience higher levels of
delinquencies and credit losses than the Bank's conforming single family
residential mortgage loan portfolio; however, these loans are expected to
provide a higher risk adjusted yield.
In the fourth quarter of 1999, the Bank established a new division to
originate multifamily and commercial real estate loans. The management team for
this division recently joined Fidelity from IMPAC Commercial Capital
Corporation, a subsidiary of IMPAC Commercial Holdings, Inc., where over an
eighteen month period they originated over $700 million in multifamily and
commercial mortgage loans which were securitized or sold into the secondary
market. It is anticipated that the loans originated by this division will either
be held in the Bank's portfolio to replace the ongoing runoff of its existing
mortgage portfolio or sold into the secondary market.
In the fourth quarter of 1999, the Bank restructured its nonconforming
mortgage loan program and consolidated its residential mortgage lending
operations. As a result, a residential lending division was created which offers
conforming, A minus, jumbo loans and second mortgages through the Bank's retail
branches and selected brokers. In order to provide a full product line to its
customers, subprime mortgage loans, which will be exclusively originated for
sale into the secondary market, will also be offered. Subprime mortgage loans
will be originated and sold subject to a maximum warehouse of loans pending sale
of $10 million.
The Bank offers overdraft protection for checking account customers through
its "Instant Reserve" personal line of credit. The Instant Reserve account
offers average credit limits of $1,500 and is available to new and existing
checking customers.
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CREDIT CARD OPERATIONS
All of the Bank's credit card programs were developed with marketers who
were responsible for marketing and processing applications. The Bank served as
issuer and owner of the credit card accounts, and was responsible for the risk
management associated with the extension of credit. The Bank developed and
implemented the underwriting standards as well as the supporting risk management
systems. Underwriting was primarily based on Fair Isaac Company ("FICO") credit
scoring methodology and projected loss rates.
The Bank entered into credit enhancement credit card programs with ADC,
FAMCO and Direct Furniture. Under the credit enhancement program, the marketer
provides credit enhancements to guarantee and support full repayment of the
Bank's outstanding receivables in the event of cardholder defaults, and, in
exchange, has the right to purchase outstanding receivables at par and receives
all revenues, net of expenses and funding costs paid to the Bank, from the
program. The Bank is paid a funding cost based on a contractual spread over the
Bank's cost of funds or the one month London Interbank Offered Rate ("LIBOR").
The marketer is required to fund a cash reserve account as part of the credit
enhancement.
The Bank entered into shared risk programs with MMG and Renzi Co. LLC
("Renzi"). Under the shared risk programs, the Bank and the marketer shared
equally the net earnings or loss of the program. The net earnings or loss
included estimated loan loss provisions, fees paid to the marketer for
originating the accounts and a yield paid to the Bank for funding the credit
card balances.
The Bank's credit card programs offered cards with credit limits ranging
from $100 to $5,000. One of the programs, which was marketed to individuals at
the lower end of the credit spectrum, had credit limits of $350 or $500 and
charged origination fees of $249 and annual fees of $50 at the time of issuance.
Two of the other programs provided credit cards to customers who utilized the
cards to finance purchases from the marketers or from direct sales organizations
with which the marketer had a contractual relationship. Credit limits for these
cards were based on the amount of the purchase and the customers' credit.
No new accounts have been originated under the MMG program since August
1998 and the Bank terminated its agreement with MMG in October 1998.
Additionally, ADC and the Bank entered into a settlement agreement in which they
agreed to wind down originations under the ADC program and terminate the related
agreement. No new accounts have been originated under the ADC program since the
first quarter of 1999. During the fourth quarter of 1998, originations of new
accounts under the FAMCO and Renzi programs ceased. Currently, the Bank is only
originating credit card accounts under the Direct Furniture program for which
Direct Furniture is obligated to fund any net advances.
LOAN SERVICING
Servicing of the Bank's loan portfolio is performed by the Company or
contract servicers. The Bank services substantially all of the multifamily
mortgage loan portfolio, which is almost exclusively located in California,
almost all of the conforming single family mortgage portfolio, the commercial
and industrial mortgage loan portfolio and the nonconforming residential
mortgage portfolio. The Bank's credit card portfolio is serviced by the Bank or
the credit card marketers. The Bank contracts with outside companies for
servicing of the Bank's other consumer loan portfolios. In 1999, the Bank
repurchased the servicing rights to substantially all of the single family loans
which had been sold in 1996. This repurchase is expected to increase the
efficiency of the Bank's existing servicing operations and give the Bank greater
control over the performance of the related mortgages. In the future, servicing
of new originations are expected to be retained by the Bank.
CORE BANK OPERATIONS
The Bank's Loan Servicing Department is responsible for collecting payments
from borrowers, contacting delinquent borrowers, and conducting foreclosure
proceedings. The Bank tracks and, in some cases, maintains impound accounts for
taxes and insurance and provides annual analysis of each account. In addition,
the Bank monitors active hazard and flood insurance and will force place
insurance on the property in the event the borrower's coverage lapses.
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In addition to servicing its own assets, the Bank provides servicing on
mortgage loans previously sold by the Bank to over 30 investors. Fidelity is an
approved originator and servicer for the Federal National Mortgage Association
(the "FNMA"), the Federal Home Loan Mortgage Corporation (the "FHLMC") and the
Federal Housing Administration (the "FHA").
The Bank has a sophisticated loan servicing system that enables it to
provide effective and efficient processing of loans. The system, which is able
to service fixed and adjustable rate loans as well as loans with staggered due
dates, provides the Bank with payment processing, collection and reporting
capabilities.
Collection activity commences upon the expiration of the grace period. A
series of two notices are mailed to delinquent borrowers over a period of 30
days and telephone calls are made on a weekly basis. Upon commencing foreclosure
action, the borrower is informed of the foreclosure status and the reinstatement
period. Property inspections are obtained to observe the condition of the
property and to determine whether changes in the value have occurred since the
date of origination. The Bank forecloses as quickly as state regulations allow.
The process may be extended in the event the borrower files bankruptcy or the
Bank enters into negotiations with the borrower for a loan restructure or
workout.
Regulation and practices regarding the foreclosure of properties and the
rights of the borrower in default vary greatly from jurisdiction to
jurisdiction. Loans originated by the Bank are secured by mortgages, deeds of
trust, security deeds or deeds to secure debt, based upon the prevailing
practice in the state in which the property securing the loan is located.
Depending upon local law, foreclosure is effected by judicial action and
or/non-judicial sale, and is subject to various notice and filing requirements.
In California, where the majority of the Bank's collateral is located,
non-bankruptcy foreclosure proceedings usually take the form of a nonjudicial
foreclosure, which is typically a four month process. Upon completion, the Bank
obtains title to the collateral but is left generally without recourse against
the borrower for any deficiency from the difference between the value of the
collateral and the loan amount.
Properties are managed prior to and post foreclosure sale with the
objective of maximizing the return on each individual asset. This strategy
includes loan modifications, short sales, deeds in lieu of foreclosure and
rehabilitation of certain properties when the investment significantly increases
the net yield on the asset. The Bank may agree to restructure the loan if it
determines that the loan, as modified, is likely to result in a greater ultimate
recovery than taking title to the property. Among the factors the Bank considers
in restructuring a loan is the extent to which the borrower pays down the loan,
furnishes additional collateral or makes a further investment in the property by
way of repairs or refurbishment, and demonstrates an awareness and ability to
manage the property according to a reasonable operating plan.
The outside servicers that provide servicing for certain of the Bank's
mortgage loans perform their customer services, collection, foreclosure and
asset disposition services in a manner similar to that performed by the Bank.
These servicers are also responsible for remitting collections and providing
detailed activity reporting on a monthly basis. The Bank's loan servicing
department is responsible for monitoring the performance of these outside
servicers.
The Bank's consumer loans other than credit card loans are serviced by
companies with specialized expertise in servicing the related loan products.
These servicers are responsible for customer and collection services,
repossession or foreclosure actions and the disposition of repossessed assets or
foreclosed property. These servicers remit collections to the Bank and provide
periodic reporting on the related portfolios.
CREDIT CARD OPERATIONS
The Bank's credit card portfolios are serviced by the Bank through its
Beaverton, Oregon operations or by the related marketers. The Company's credit
card servicing center located in Beaverton, Oregon, began operations during the
second quarter of 1998, and currently provides customer service for the ADC,
MMG, Direct Furniture and Renzi credit card portfolios, and provides collection
services for the ADC, MMG and Renzi credit card portfolios. Collection services
for the Direct Furniture credit card portfolio is performed by the related
marketer. FAMCO provides both customer service and collection services for the
FAMCO credit card portfolio. In February 2000, the Bank notified FAMCO that it
is terminating its servicing agreement with FAMCO, subject to a contractual
notice period of 180 days. At the end of this notice period the Bank intends to
provide, directly, both customer and collection services for the FAMCO credit
card portfolio.
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CREDIT ADMINISTRATION
The credit administration function is responsible for monitoring and
assessing the credit risk in the Bank's loan portfolio. This includes the
identification, measurement and establishment of credit loss reserves, including
the allowance for loan and lease losses ("ALLL") and specific valuation
allowances ("SVAs").
LOAN MONITORING
The Bank has a loan review system that is designed to meet the following
objectives:
o To identify, in a timely manner, loans with potential credit or
collateral weaknesses and to appropriately classify loans with well
defined weaknesses that jeopardize loan repayment so that timely
action can be taken and credit losses can be mitigated.
o To project relevant trends that affect the collectibility of the loan
portfolio.
o To provide essential information to assess the adequacy of the
allowance for loan losses and to identify and recognize in a timely
manner estimated specific loan losses.
o To assess the adequacy of and adherence to the Bank's internal credit
policies and loan administration procedures and to monitor compliance
with the foregoing and with related laws and regulations.
The Bank considers such risk factors as payment history, collateral value,
income property cash flow, property condition, and the borrower's financial
capacity and property management experience in its monitoring and risk grading
process.
LOAN GRADING SYSTEM
The Bank has a loan grading policy which for larger multifamily and
commercial mortgages loans is implemented through a loan grading system ("LGS").
The evaluation of each loan is based on four key risk attributes: (1) the
ability of income from the property to act as the primary source of repayment,
(2) the value of the collateral if a sale is required, (3) the ability and
willingness of the borrower to pay, and (4) market trends in the area around the
property. Grading loans involves assessing various risk indicators related to
the borrower. For income properties, the primary source of repayment is cash
flow from the operation of the property. The adequacy of the property's cash
flow is the primary determinant of the risk grade. The borrowers' historical
payment performance, including loan payments, tax payments, insurance payments
and property maintenance, is also reviewed when determining a loan grade. The
absence of borrower performance indicates a lack of capacity and possible
downgrade of the loan. The value of the collateral is considered a secondary
source of repayment which becomes more important when the primary sources become
weaker. The collateral value can influence the primary repayment source by
motivating the borrower to continue supporting the property or impacting the
borrower's ability to refinance the loan. Loan grading for other loans is
primarily based on payment performance.
Credit risk for all loans is graded based on the Bank's internal asset
review policies and procedures, and individual loans are categorized as Pass,
Special Mention, Substandard, Doubtful or Loss depending on the risk
characteristics of each loan. All such grading requires the application of
subjective judgment by the Bank. A brief description of these categories
follows:
A PASS asset is considered of sufficient quality to preclude designation as
Special Mention or a Substandard asset. Pass assets generally are protected by
the current net worth and paying capacity of the obligor and by the value of the
underlying collateral.
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An asset designated as SPECIAL MENTION does not currently expose the
institution to a sufficient degree of risk to warrant an adverse classification.
However, it does possess credit deficiencies or potential weaknesses deserving
management's close attention. If uncorrected, such weaknesses or deficiencies
may expose an institution to an increased risk of loss in the future. Special
Mention assets are also referred to as criticized.
An asset classified as SUBSTANDARD is inadequately protected by the current
net worth and paying capacity of the obligor or of the collateral pledged.
Assets so classified have a well-defined weakness or weaknesses. They are
characterized by the distinct possibility that the insured institution will
sustain some loss if the deficiencies are not corrected.
Assets classified as DOUBTFUL have all the weaknesses inherent in those
classified as Substandard. In addition, these weaknesses make collection or
liquidation in full, on the basis of currently existing facts, conditions and
values, highly questionable or improbable. The Bank will generally classify
assets as Doubtful when inadequate data is available or when such uncertainty
exists as to preclude a Substandard classification.
Assets classified as LOSS are considered uncollectible and of such little
value that their continuance as assets without establishment of a Specific
Valuation Allowance ("SVA") is not warranted. A Loss classification does not
mean that an asset has absolutely no recovery or salvage value; rather it means
that it is not practical or desirable to defer establishing a SVA for a
basically worthless asset even though partial recovery may be effected in the
future. The Bank will generally classify as Loss the portion of assets
identified as exceeding the asset's estimated fair market value and a SVA is
established for such excess.
INVESTMENTS
The Company's investment activities have historically consisted of trading,
available for sale ("AFS") and held to maturity portfolios as well as short term
liquidity investing.
An investment trading portfolio is used to generate gains from the
purchases and sale of securities. Historically, securities held in a trading
portfolio consist primarily of mortgage-backed securities ("MBS") which allows
the Company to earn interest during the period which these securities are held.
During the third quarter of 1998, the Company liquidated its investment trading
portfolio and at December 31, 1999, the Company did not have an investment
trading portfolio.
The Company's AFS and held to maturity investment portfolios are used to
generate interest income for funds not invested in loans. The AFS portfolio
provides flexibility to the Company in managing its balance sheet as these
assets are generally more marketable than loans. Investments in the Company's
AFS and held to maturity portfolios primarily consists of MBS, treasuries and
collateralized mortgage obligations ("CMO"). At December 31, 1999, the Company
had $320.2 million in its AFS portfolio.
The Company is required to maintain a certain level of liquidity in the
form of cash or cash equivalents. In addition, the Company may have additional
liquidity as a result of its balance sheet management. This liquidity is
invested in MBS, treasuries, federal funds sold and whole loan investment
repurchase agreements. At December 31, 1999, the Company had cash and cash
equivalents of $89.5 million.
BORROWINGS
In addition to retail deposits, the Company obtains funding from FHLB
advances, securities sold under agreements to repurchase, and other short-term
and long-term borrowings. The Company may, from time to time, utilize brokered
deposits as a short-term means of funding. These deposits are obtained or placed
by or through a deposit broker and are subject to certain regulatory
limitations.
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The Company utilizes FHLB advances as a source of funds for operations. The
FHLB System functions as a source of credit to financial institutions which are
members of a Federal Home Loan Bank. Fidelity may apply for advances from the
FHLB secured by the capital stock of the FHLB owned by Fidelity and certain of
Fidelity's mortgages and other assets (principally obligations issued or
guaranteed by the U.S. Government or agencies thereof). Advances can be
requested for any business purpose in which Fidelity is authorized to engage,
except that advances with a term greater than five years can be granted only for
the purpose of providing funds for residential housing finance. In granting
advances, the FHLB considers a member's creditworthiness and other relevant
factors. Fidelity's available FHLB line of credit is based primarily on a
portion of Fidelity's residential loan portfolio pledged for such purpose, up to
a maximum of 15% of total assets.
On July 18, 1997, the Company issued approximately $51.5 million of its 12%
Senior Notes due July 18, 2007 (the "Senior Notes") in exchange for the
outstanding shares of 12% Noncumulative Exchangeable Perpetual Preferred Stock,
Series A (the "Preferred Stock") issued by Fidelity in 1995. Holders of
approximately 11,000 shares of the majority interest elected not to exchange
their stock for Senior Notes and these shares are reflected as preferred stock
issued by consolidated subsidiary on the Statement of Financial Condition as of
December 31, 1999 and 1998.
From time to time, Fidelity enters into reverse repurchase agreements by
which it sells securities with an agreement to repurchase the same securities at
a specific future date (overnight to one year). The Company deals only with
dealers who are recognized as primary dealers in U.S. Treasury securities by the
Federal Reserve Board or perceived by management to be financially strong.
COMPETITION
As a thrift institution, the Company's most significant revenue source is
its loan portfolio and its primary source of funding is from deposits.
During 1999, the Company primarily originated mortgage loans on single
family residential properties. During 1997 and 1998, the Company focused it loan
origination activities on consumer loans. Prior to 1994, the Company primarily
originated mortgage loans, including a substantial amount of loans secured by
multifamily residences. In each of these areas, the Company faces significant
competition from thrifts, commercial banks, mortgage bankers and others.
Competition is based primarily on pricing, credit access and customer service. A
number of these competitors have significantly more resources than the Company,
including larger asset bases, more equity, more locations and more employees.
The Company has an established retail branch system in Southern California
upon which it relies for its deposits. Because these deposits are heavily
concentrated in CDs rather than transaction accounts, the Company's deposit base
is more sensitive to changes in interest rates. Historically, because of expense
constraints, the Company has not spent significant amounts in advertising its
deposit products. Competition for customers' deposits is generally based on
interest rates paid, perceived credit risk, account flexibility, costs and
customer service. The Company faces significant competition in attracting funds
from other thrifts, commercial banks, mutual funds, insurance companies, credit
unions, investment banks, investment brokerage firms, pension funds and others.
A number of competitors are significantly larger than the Company, maintain a
better credit standing and are able to pay higher rates of return to customers.
In addition, most of the Company's competitors spend more on advertising.
EMPLOYEES
The Company had 767 average full-time equivalent employees ("FTEs") for the
1999 year with 835 employees at December 31, 1999 (including both full-time and
part-time employees) none of whom were represented by a collective bargaining
group. Eligible employees are provided with 401(k) and other benefits, including
life, medical, dental, vision insurance and short and long-term disability
insurance. The Company considers employee relations to be satisfactory. However,
the Company's disappointing results of operations and publicly disclosed
intentions to consider the sale of the Company have adversely impacted its
ability to retain employees. The Company has taken certain measures to retain
key employees, including the granting of stock options and the execution of
severance and change-in-control agreements. However, no assurances can be given
that these measures will be sufficient to retain key employees.
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REGULATION AND SUPERVISION
GENERAL
Bank Plus is a savings and loan holding company and, as such, is subject to
the OTS regulation, examination, supervision and reporting requirements.
Fidelity is a federally chartered savings bank, a member of the FHLB of San
Francisco, and its deposits are insured by the FDIC through the Savings
Association Insurance Fund ("SAIF") to the maximum extent permitted by law.
Fidelity is subject to extensive regulation by the OTS, as its chartering
agency, and by the FDIC, as its deposit insurer. In addition to the statutes and
regulations discussed below, Fidelity must undergo at least one full scope,
on-site safety and soundness examination every year. The Director of the OTS is
authorized to impose assessments on Fidelity to fund OTS operations, including
the cost of examinations. The FDIC has "back-up" authority to take enforcement
action against Fidelity if the OTS fails to take such action after a
recommendation by the FDIC. The FDIC may also impose assessments on Fidelity to
cover the cost of FDIC examinations. Finally, Fidelity is subject to regulation
by the Board of Governors of the Federal Reserve System ("FRB") with respect to
certain aspects of its business.
Changes in legislation and regulatory policy and the interpretations
thereof have materially affected the business of the Company and other financial
institutions in the past and are likely to do so in the future. There can be no
assurance that future changes in the regulations or their interpretation will
not adversely affect the business of Fidelity. Future legislation and regulatory
policy could also alter the structures and competitive relationships among
financial institutions. Regulatory authorities also have the power, in certain
circumstances, to prohibit or limit the payment of dividends or other
distributions by Fidelity, which may, in turn, adversely affect the ability of
Bank Plus to pay its obligations as they become due. In addition, certain
regulatory actions, including general increases in federal deposit insurance
premiums, or the application of the risk-based insurance premium system to
Fidelity, may increase Fidelity's operating expenses in future periods and may
have a material adverse impact on Fidelity's capital levels and results of
operations.
BANK PLUS REGULATION
Bank Plus is a unitary savings and loan holding company within the meaning
of the Home Owners' Loan Act of 1933, as amended ("HOLA"). As such, Bank Plus is
required to be registered with the OTS and is subject to OTS regulations,
examinations, supervision and reporting requirements. Among other things, the
OTS has enforcement authority which permits the OTS to restrict or prohibit
activities that are determined to be a serious risk to the subsidiary savings
institution.
ACTIVITIES RESTRICTIONS. There are generally no restrictions on the
activities of a unitary savings and loan holding company. However, if the
savings institution subsidiary of such a holding company fails to meet the
qualified thrift lender ("QTL") test, then such unitary holding company also
will become subject to the activities restrictions applicable to multiple
savings and loan holding companies and, unless the savings institution
requalifies as a QTL within one year thereafter, will have to register as, and
become subject to the restrictions applicable to, a bank holding company.
If Bank Plus were to acquire control of another savings institution, other
than through merger or other business combination with Fidelity, Bank Plus would
thereupon become a multiple savings and loan holding company. Except under
limited circumstances, the activities of Bank Plus and any of its subsidiaries
(other than Fidelity or other subsidiary savings institutions) would thereafter
be subject to further extensive limitations. In general, such holding company
would be limited primarily to activities permissible for bank holding companies
under the Bank Holding Company Act and other activities in which multiple
savings and loan companies were authorized by regulation to engage as of March
5, 1987.
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RESTRICTIONS ON ACQUISITIONS. Except under limited circumstances, savings
and loan holding companies are prohibited from acquiring, without prior approval
of the Director of the OTS, (i) control of any other savings institution or
savings and loan holding company or substantially all the assets thereof, or
(ii) more than 5% of the voting shares of a savings institution or holding
company thereof which is not a subsidiary. Except with the prior approval of the
Director of the OTS, no director or officer of a savings and loan holding
company or person owning or controlling by proxy or otherwise more than 25% of
such company's stock, may acquire control of any savings institution, other than
a subsidiary savings institution, or of any other savings and loan holding
company.
The Director of the OTS may only approve acquisitions resulting in the
formation of a multiple savings and loan holding company which controls savings
institutions in more than one state if (i) the multiple savings and loan holding
company involved controls a savings institution which operated a home or branch
office located in the state of the institution to be acquired as of March 5,
1987; (ii) the acquiror is authorized to acquire control of the savings
institution pursuant to the emergency acquisition provisions of the Federal
Deposit Insurance Act ("FDIA"); or (iii) the statutes of the state in which the
institution to be acquired by the state-chartered institutions or savings and
loan holding companies located in the state where the acquiring entity is
located (or by a holding company that controls such state-chartered savings
institutions).
FIDELITY REGULATION--CAPITAL REQUIREMENTS AND CAPITAL CATEGORIES
FIRREA CAPITAL REQUIREMENTS. The OTS capital regulations, as required by
the Financial Institutions Reform, Recovery, and Enforcement Act of 1989
("FIRREA"), include three separate minimum capital requirements for the savings
institution industry--a "tangible capital requirement," a "leverage limit" and a
"risk-based capital requirement." These capital standards must be no less
stringent than the capital standards applicable to national banks. The OTS also
has the authority, after giving the affected institution notice and an
opportunity to respond, to establish an individual minimum capital requirement
("IMCR") for a savings institution which is higher than the industry minimum
requirements, upon a determination that an IMCR is necessary or appropriate in
light of the institution's particular circumstances, such as if the institution
is expected to have losses resulting in capital inadequacy, has a high degree of
exposure to credit risk, has a high amount of nonperforming loans, has a high
degree of exposure to concentration of credit risk or risks arising from
nontraditional activities, or fails to adequately monitor and control the risks
presented by concentration of credit and nontraditional activities.
The industry minimum capital requirements are as follows:
TANGIBLE CAPITAL OF AT LEAST 1.5% OF ADJUSTED TANGIBLE ASSETS. Tangible
capital is composed of (1) common stockholders' equity, noncumulative perpetual
preferred stock and related earnings, nonwithdrawable accounts and pledged
deposits qualifying as core capital and minority interests in the equity
accounts of fully consolidated subsidiaries, after deducting (a) intangible
assets other than certain purchased or originated mortgage servicing rights, (b)
equity and debt investments in subsidiaries engaged in activities not
permissible for a national bank (except as otherwise provided), and (c) the
amount by which investments in subsidiaries engaged as principal in activities
not permissible for national banks exceeds the amount of such investments as of
April 12, 1989, and the lesser of the institution's investments in and
extensions of credit to such subsidiaries, net of any reserves established
against such investments, (i) as of April 12, 1989, and (ii) as of the date on
which the institution's tangible capital is being determined. In general,
adjusted tangible assets equal the institution's consolidated tangible assets,
minus any assets that are deducted in calculating capital.
CORE CAPITAL OF AT LEAST 3% OF ADJUSTED TANGIBLE ASSETS (THE "LEVERAGE
LIMIT"). Core capital consists of tangible capital plus (1) qualifying goodwill
resulting from pre-April 12, 1989 acquisitions of troubled savings institutions,
and (2) certain qualifying intangible assets and mortgage servicing rights.
Certain deferred tax assets must also be deducted from core capital.
TOTAL CAPITAL OF AT LEAST 8% OF RISK-WEIGHTED ASSETS (THE "RISK-BASED
CAPITAL REQUIREMENT"). Total capital includes both core capital and
"supplementary" capital items deemed less permanent than core capital, such as
subordinated debt and general loan loss allowances (subject to certain limits).
Equity investments (with the exception of investments in subsidiaries and
investments permissible for national banks) and portions of certain high-risk
land loans and nonresidential construction loans must be deducted from total
capital. At least half of total capital must consist of core capital.
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Risk-weighted assets are determined by multiplying each category of an
institution's assets, including off balance sheet asset equivalents, by an
assigned risk weight based on the credit risk associated with those assets, and
adding the resulting products. The four risk weight categories range from 0% for
cash and government securities to 100% for assets (including past-due loans and
real estate owned ("REO")) that do not qualify for preferential risk-weighting.
On March 18, 1994, the OTS published a final regulation effective on that
date that permits a loan secured by multifamily residential property, regardless
of the number of units, to be risk-weighted at 50% for purposes of the
risk-based capital standards if the loan meets specified criteria relating to
the term of the loan, timely payments of interest and principal, loan-to-value
ratio and ratio of net operating income to debt service requirements. Under the
prior regulation, only loans secured by multifamily residential properties
consisting of 5 to 36 units were eligible for risk-weighting at 50%, and then
only if such loans had a loan-to-value ratio at origination of not more than 80%
and the collateral property had an average annual occupancy rate of at least 80%
for a year or more.
Any loans that qualified for risk-weighting under the prior regulation as
of March 18, 1994 will be "grandfathered" and will continue to be risk-weighted
at 50% as long as they continue to meet the criteria of the prior regulation.
Thus occupancy rates, will continue to affect the risk-weighting of such
grandfathered multifamily loans unless such loans qualify for 50% risk-weighting
under the criteria of the new rule, which criteria do not include an occupancy
requirement.
Under the Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), the OTS was required to revise its risk-based capital standards to
ensure that those standards take adequate account of interest rate risk,
concentration of credit risk and risks of nontraditional activities. The OTS has
incorporated an interest rate risk component into its regulatory capital rule.
Under the rule, savings institutions with "above normal" interest rate risk
exposure would be subject to a deduction from total capital for purposes of
calculating their risk-based capital requirements. An institution whose interest
rate risk exposure (measured as set forth in the rule) exceeded 2.0% would be
required to deduct an interest rate risk component in calculating its total
capital under the risk-based capital rule. The interest rate risk component is
an amount equal to one-half of the difference between the institution's measured
interest rate risk and 2.0% multiplied by the estimated economic value of the
bank's assets. That dollar amount would be deducted from a bank's total capital
in calculating compliance with its risk-based capital requirement. Under the
rule, there is a lag between the reporting date of an institution's financial
data and the effective date for the new capital requirement based on that data.
The rule also provides that the Director of the OTS may waive or defer a bank's
interest rate risk component on a case-by-case basis. The OTS has postponed the
implementation of the new rule until the OTS has collected sufficient data to
determine whether the rule is effective in monitoring and managing interest rate
risk. No interest rate risk component would have been required to be added to
the Bank's risk-based capital requirement at December 31, 1999 had the rule been
in effect at that time.
FDICIA PROMPT CORRECTION ACTION REGULATIONS. FDICIA required the OTS to
implement a system requiring regulatory sanctions against institutions that are
not adequately capitalized, with the sanctions growing more severe the lower the
institution's capital. The OTS has established specific capital ratios under the
Prompt Corrective Action ("PCA") Regulations for five separate capital
categories: well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically undercapitalized.
Under the OTS regulations implementing FDICIA, an institution is treated as
well capitalized if its ratio of total capital to risk-weighted assets is at
least 10.0%, its ratio of core capital to risk-weighted assets is at least 6.0%,
its ratio of core capital to adjusted tangible assets is at least 5.0%, and it
is not subject to any order or directive by the OTS to meet a specific capital
level. An institution will be adequately capitalized if its ratio of total
capital to risk-weighted assets is at least 8.0%, its ratio of core capital to
risk-weighted assets is at least 4.0%, and its ratio of core capital to adjusted
tangible assets (leverage ratio) is at least 4.0% (3.0% if the institution
receives the highest rating on the OTS financial institutions rating system).
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An institution whose capital does not meet the amounts required to be
adequately capitalized will be treated as undercapitalized. If an
undercapitalized institution's capital ratios are less than 6.0% total capital
to risk-weighted assets, 3.0% core capital to risk-weighted assets, or 3.0% core
capital to adjusted tangible assets, it will be treated as significantly
undercapitalized. Finally, an institution will be treated as critically
undercapitalized if its ratio of "tangible equity" (core capital plus cumulative
perpetual preferred stock minus intangible assets other than supervisory
goodwill and certain originated and purchased mortgage servicing rights) to
adjusted tangible assets is equal to or less than 2.0%.
MANDATORY RESTRICTIONS ON UNDERCAPITALIZED INSTITUTIONS. There are numerous
mandatory restrictions on the activities of undercapitalized institutions. An
institution that is undercapitalized must submit a capital restoration plan to
the OTS that the OTS may approve only if it determines that the plan is likely
to succeed in restoring the institution's capital and will not appreciably
increase the risks to which the institution is exposed. In addition, the
institution's performance under the plan must be guaranteed by every company
that controls the institution, up to specified limits. An institution that is
undercapitalized may not acquire an interest in any company, open a new branch
office or engage in a new line of business without OTS or FDIC approval. An
undercapitalized institution also may not increase its average total assets
during any quarter except in accordance with an approved capital restoration
plan. An undercapitalized savings institution generally may not pay any
dividends or make other capital distributions. Undercapitalized institutions
also may not pay management fees to any company or individual that controls the
institution. An undercapitalized savings institution cannot accept, renew, or
rollover deposits obtained through a deposit broker, and may not solicit
deposits by offering interest rates that are more than 75 basis points higher
than market rates. Savings institutions that are adequately capitalized but not
well capitalized must obtain a waiver from the FDIC in order to accept, renew,
or rollover brokered deposits, and even if a waiver is granted may not solicit
deposits, through a broker or otherwise, by offering interest rates that exceed
market rates by more than 75 basis points.
RESTRICTIONS ON SIGNIFICANTLY AND CRITICALLY UNDERCAPITALIZED INSTITUTIONS.
In addition to the above mandatory restrictions which apply to all
undercapitalized savings institutions, institutions that are significantly
undercapitalized may not without the OTS' prior approval (a) pay a bonus to any
senior executive officer, or (b) increase any senior executive officer's
compensation over the average rate of compensation (excluding bonuses, options
and profit-sharing) during the 12 months preceding the month in which the
institution became undercapitalized. The same restriction applies to
undercapitalized institutions that fail to submit or implement an acceptable
capital restoration plan. If a savings institution is critically
undercapitalized, the institution is also generally prohibited from making
payments of principal or interest on subordinated debt beginning 60 days after
the institution becomes critically undercapitalized. In addition, the
institution cannot without prior FDIC approval enter into any material
transaction outside the ordinary course of business. Critically undercapitalized
savings institutions must be placed in receivership or conservatorship within 90
days of becoming critically undercapitalized unless the OTS, with the
concurrence of the FDIC, determines that some other action would better resolve
the problems of the institution at the least possible long-term loss to the
insurance fund, and documents the reasons for its determination.
DISCRETIONARY SANCTIONS. With respect to an undercapitalized institution,
the OTS, under certain circumstances, has the authority, among other things, to
order the institution to recapitalize by selling shares of capital stock or
other securities, order the institution to agree to be acquired by another
depository institution holding company or combine with another depository
institution, restrict transactions with affiliates, restrict the interest rates
paid by the institution on new deposits to the prevailing rates of interest in
the region where the institution is located, require the institution to divest
any subsidiary or the institution's holding company to divest the institution or
any other subsidiary or take any other action that the OTS determines will
better resolve the institution's problems at the least possible loss to the
deposit insurance fund. With respect to significantly undercapitalized
institutions and certain undercapitalized institutions, the OTS must take
certain of the above mentioned actions.
In addition to the mandatory appointment of a conservator or receiver for
critically undercapitalized institutions, described above, the OTS or FDIC may
appoint a receiver or conservator for an undercapitalized institution if it (a)
has no reasonable prospect of becoming adequately capitalized, (b) fails to
submit a capital restoration plan within the required time period, or (c)
materially fails to implement its capital restoration plan.
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Finally, the OTS can apply to an institution in a particular capital
category the sanctions that apply to the next lower capital category, if the OTS
determines, after providing the institution notice and opportunity for a
hearing, that (a) the institution is in an unsafe or unsound condition, or (b)
the institution received, in its most recent report of examination, a
less-than-satisfactory rating for asset quality, management, earnings or
liquidity, and the deficiency has not been corrected. The OTS cannot, however,
use this authority to require an adequately capitalized institution to file a
capital restoration plan, or to subject a significantly undercapitalized
institution to the sanctions applicable to critically undercapitalized
institutions.
FIDELITY REGULATION--ACTIVITIES REGULATION NOT RELATED TO CAPITAL COMPLIANCE
SAFETY AND SOUNDNESS STANDARDS. In addition to the PCA provisions discussed
above based on an institution's regulatory capital ratios, FDICIA contains
several measures intended to promote early identification of management problems
at depository institutions and to ensure that regulators intervene promptly to
require corrective action by institutions with inadequate operational and
managerial standards.
FDICIA requires the OTS to prescribe minimum acceptable operational and
managerial standards, and standards for asset quality, earnings, and valuation
of publicly traded shares, for savings institutions and their holding companies.
The operational standards must cover internal controls, loan documentation,
credit underwriting, interest rate exposure, asset growth and employee
compensation. The asset quality and earnings standards must specify a maximum
ratio of classified assets to capital, minimum earnings sufficient to absorb
losses, and minimum ratio of market value to book value for publicly traded
shares.
Any institution or holding company that fails to meet the standards must
submit a plan for corrective action within 30 days. If a savings institution
fails to submit or implement an acceptable plan, the OTS must order it to
correct the safety and soundness deficiency, and may restrict its rate of asset
growth, prohibit asset growth entirely, require the institution to increase its
ratio of tangible equity to assets, restrict the interest rate paid on deposits
to the prevailing rates of interest on deposits of comparable amounts and
maturities, or require the institution to take any other action that the OTS
determines will better carry out the purpose of PCA. Imposition of these
sanctions is within the discretion of the OTS in most cases but is mandatory if
the savings institution commenced operations or experienced a change in control
during the 24 months preceding the institution's failure to meet the safety and
soundness standards, or underwent extraordinary growth during the preceding 18
months.
The OTS has adopted guidelines for operational and managerial standards
relating to internal controls, loan documentation, credit underwriting, interest
rate exposure, asset growth, compensation, fees and benefits and excessive
compensatory arrangements for executive officers, employees, directors or
principal shareholders.
As a result of the OTS' findings during their 1998 safety and soundness
examination, the Bank is subject to certain regulatory restrictions including,
but not limited to: (i) a prohibition, absent OTS prior approval, on increases
in total assets during any quarter in excess of an amount equal to net interest
credited on deposit liabilities during the quarter, (ii) a requirement that the
Bank submit to the OTS for prior review and approval the names of proposed new
directors and senior executive officers and proposed employment contracts with
any director or executive officer, (iii) a requirement that the Bank submit to
the OTS for prior review and approval any third party contracts outside the
normal course of business, and (iv) the ability of the OTS, in its discretion,
to require 30 days prior notice of all transactions between the Bank and its
affiliates.
Each depository institution with assets above $500 million must annually
prepare a report, signed by the chief executive officer and chief financial
officer, on the effectiveness of the institution's internal control structures
and procedures for financial reporting, and on the institution's compliance with
laws and regulations relating to safety and soundness. The institution's
independent public accountant must attest to, and report separately on,
management's assertions in that report. The report and the attestations, along
with financial statements and such other disclosure requirements as the FDIC and
the OTS may prescribe, must be submitted to the FDIC and the OTS. Such
institutions must also have an audit committee of its Board of Directors made up
entirely of directors who are independent of the management of the institution.
Audit committees of "large" institutions (defined by the FDIC as an institution
with more than $3 billion in assets, which includes Fidelity) must include
members with banking or financial management expertise, may not include members
who are large customers of the institution, and must have access to independent
counsel.
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QUALIFIED THRIFT LENDER TEST. The QTL test requires that, in at least nine
out of every twelve months, at least 65% of a savings bank's "portfolio assets"
must be invested in a limited list of qualified thrift investments, primarily
investments related to housing loans. If Fidelity fails to satisfy the QTL test
and does not requalify as a QTL within one year, any entity in control of
Fidelity must register and be regulated as a bank holding company, and Fidelity
must either convert to a commercial bank charter or become subject to
restrictions on branching, business activities and dividends as if it were a
national bank. Portfolio assets consist of tangible assets minus (a) assets used
to satisfy liquidity requirements, and (b) property used by the institution to
conduct its business. In 1996, the Economic Growth and Regulatory Paperwork
Reduction Act ("EGRPRA") was adopted, amending the QTL requirements to allow
educational loans, small business loans and credit card loans to count as
qualified thrift assets without limit and to allow loans for personal, family or
household purposes to count as qualified thrift assets in the category limited
to 20% of portfolio assets. The previous limit for loans for personal, family or
household purposes was also 10% of portfolio assets. Finally, EGRPRA provided
that as an alternative to the QTL test, thrifts may choose to comply with the
Internal Revenue Service's domestic building and loan tax code test.
INVESTMENTS AND LOANS. In general, federal savings institutions such as
Fidelity may not invest directly in equity securities, noninvestment grade debt
securities or real estate, other than real estate used for the institution's
offices and related facilities. Indirect equity investment in real estate
through a subsidiary is permissible, but subject to certain limitations and
deductions from regulatory capital. Loans by a savings institution to a single
borrower are generally limited to 15% of an institution's "unimpaired capital
and unimpaired surplus," which is similar but not identical to total capital.
Aggregate loans secured by nonresidential real property are generally limited to
400% of an institution's total capital. Commercial loans may not exceed 10% of
an institution's total assets, and consumer loans may not exceed 35% of an
institution's total assets.
ACTIVITIES OF SUBSIDIARIES. A savings institution seeking to establish a
new subsidiary, acquire control of an existing company or conduct a new activity
through an existing subsidiary must provide 30 days prior notice to the FDIC and
OTS. A subsidiary of Fidelity may be able to engage in activities that are not
permissible for Fidelity directly, if the OTS determines that such activities
are reasonably related to Fidelity's business, but Fidelity may be required to
deduct its investment in such a subsidiary from capital. The OTS has the power
to require a savings institution to divest any subsidiary or terminate any
activity conducted by a subsidiary that the OTS determines to be a serious
threat to the financial safety, soundness or stability of such savings
institution or to be otherwise inconsistent with sound banking practices.
REAL ESTATE LENDING STANDARDS. The OTS and the other federal banking
agencies have adopted regulations which require institutions to adopt and at
least annually review written real estate lending policies. The lending policies
must include diversification standards, underwriting standards (including
loan-to-value limits), loan administration procedures, and procedures for
monitoring compliance with the policies. The policies must reflect consideration
of guidelines adopted by the banking agencies. Among the guidelines adopted by
the agencies are maximum loan-to-value ratios for unimproved land loans (65%);
development loans (75%); construction loans (80%-85%); loans on owner-occupied 1
to 4 family property, including home equity lines of credit (no limit, but loans
at or above 90% require private mortgage insurance); and loans on other improved
property (85%). The guidelines permit institutions to make loans in excess of
the supervisory loan-to-value limits if such loans are supported by other credit
factors, but the aggregate of such nonconforming loans should not exceed the
institution's risk-based capital, and the aggregate of nonconforming loans
secured by real estate other than 1 to 4 unit residential property should not
exceed 30% of risk-based capital.
NOTIFICATION OF NEW OFFICERS AND DIRECTORS. A federal savings bank that
does not comply with all minimum capital requirements under part 567 of the OTS
regulations is deemed to be in "troubled condition" by the OTS, or that has been
notified by the OTS in connection with the review of a capital restriction plan,
or otherwise, that a notice must be provided must give the OTS 30 days notice
prior to any change in its Board of Directors or its senior executive officers.
The OTS must disapprove such change if the competence, experience or integrity
of the affected individual indicates that it would not be in the best interests
of the public to permit the appointment. Fidelity is currently subject to this
notice requirement.
PAYMENT OF DIVIDENDS AND OTHER CAPITAL DISTRIBUTIONS. The payment of
dividends, stock repurchases, and other capital distributions by Fidelity to
Bank Plus is subject to regulation by the OTS.
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The OTS recently amended the capital distribution rule to conform to the
PCA system. Under the rule, an institution is able to make a capital
distribution (i) without prior notice to the OTS if it is not owned by a savings
and loan holding company and, after the proposed capital distribution, will
remain at least "adequately capitalized," the distribution would not reduce the
amount of common or preferred stock or retire debt that is included in capital,
and the distribution would not otherwise violate any statutory regulatory or
other prohibition; (ii) without an application if the institution has a
composite rating of "1" or "2", is otherwise eligible for expedited treatment
and the distribution does not exceed a specified amount; and (iii) without
notice or application if all of the conditions specified above are met. Fidelity
is still required to obtain OTS approval prior to making a capital distribution.
REQUIRED LIQUIDITY. OTS regulations require savings institutions to
maintain, for each calendar quarter, an average daily balance of liquid assets
(including cash, certain time deposits, bankers' acceptances, certain
mortgage-related securities, certain loans secured by first liens on residential
property, specified United States government, state and federal agency
obligations, and balances maintained in satisfaction of the FRB reserve
requirements described below) equal to at least 4% of either (i) the prior
quarter end balance of its net withdrawable accounts due in one year or less
plus borrowings due in one year or less (the "liquidity base") or (ii) the
average daily balance of the liquidity base during the prior calendar quarter.
In addition, savings institutions must comply with a general non-quantitative
requirement to maintain a safe and sound level of liquidity. The OTS may change
this liquidity requirement from time to time to an amount within a range of 4%
to 10% of such accounts and borrowings depending upon economic conditions and
the deposit flows of member institutions, and may exclude from the definition of
liquid assets any item other than cash and the balances maintained in
satisfaction of FRB reserve requirements. Monetary penalties may be imposed for
failure to meet liquidity ratio requirements.
CLASSIFICATION OF ASSETS. Savings institutions are required to classify
their assets on a regular basis, to establish appropriate allowances for losses
and report the results of such classification quarterly to the OTS. A savings
institution is also required to set aside adequate valuation allowances, and to
establish liabilities for off-balance sheet items, such as letters of credit,
when a loss becomes probable and estimable. The OTS has the authority to review
the institution's classification of its assets and to determine whether
additional assets must be classified, or the institution's valuation allowances
must be increased.
Assets are classified as "pass", "special mention", "substandard",
"doubtful" or "loss." An asset which possesses no apparent weakness or
deficiency is designated "satisfactory". An asset which possesses weaknesses or
deficiencies deserving close attention is designated as "special mention". An
asset, or a portion thereof, is generally classified as "substandard" if it
possesses a well-defined weakness which could jeopardize the timely liquidation
of the asset or realization of the collateral at the asset's book value. Thus,
these assets are characterized by the possibility that the institution will
sustain some loss if the deficiencies are not corrected. An asset, or portion
thereof, is classified as "doubtful" if a probable loss of principal and/or
interest exists but the amount of the loss, if any, is subject to the outcome of
future events which are indeterminable at the time of classification. If an
asset, or portion thereof, is classified as "loss", the institution must either
establish a SVAs equal to the amount classified as loss or charge off such
amount.
FIDELITY REGULATION--DEPOSIT INSURANCE
GENERAL. Fidelity's deposits are insured by the FDIC to the maximum limits
permitted by law. Under FIRREA, the FDIC administers two separate deposit
insurance funds: the Bank Insurance Fund ("BIF") which insures the deposits of
institutions that were insured by the FDIC prior to FIRREA, and the SAIF which
maintains a fund to insure the deposits of institutions, such as Fidelity, that
were insured by the Federal Savings and Loan Insurance Corporation ("FSLIC")
prior to FIRREA.
INSURANCE PREMIUM ASSESSMENTS. The FDICIA directed the FDIC to establish a
risk-based system for setting deposit insurance premium assessments. The FDIC
has implemented such a system, under which an institution's insurance
assessments will vary depending on the level of capital the institution holds
and the degree to which it is the subject of supervisory concern to the FDIC.
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Legislation was enacted on September 30, 1996, to address the disparity in
bank and thrift deposit insurance premiums. This 1996 legislation altered the
obligation with respect to the payment of interest on the debt obligations
issued by the Financing Corporation ("FICO Debt") and separated the assessments
levied by the FDIC for deposit insurance coverage from assessments to make such
FICO Debt interest payments. Although the risk-based assessment system for BIF
members and for SAIF members, such as Fidelity, provides for the same assessment
rates for similarly rated institutions, Federal law provides for different
assessment rates for purposes of the FICO Debt interest payments to be paid on
SAIF and BIF deposits until December 31, 1999. Under these provisions, SAIF
deposits were assessed at five times the rate at which BIF deposits will be
assessed. In 1999, the SAIF assessment for purposes of paying FICO Debt interest
is 0.0610%. Effective January 1, 2000, this rate decreased to .0212%.
TERMINATION OF DEPOSIT INSURANCE. The FDIC may initiate a proceeding to
terminate an institution's deposit insurance if, among other things, the
institution is in an unsafe or unsound condition to continue operations. It is
the policy of the FDIC to deem an insured institution to be in an unsafe or
unsound condition if its ratio of Tier 1 capital to total assets is less than
2%. Tier 1 capital is similar to core capital but includes certain investments
in and extensions of credit to subsidiaries engaged in activities not permitted
for national banks.
FIDELITY AFFILIATES REGULATION
AFFILIATE AND INSIDER TRANSACTIONS. The ability of Bank Plus and its
non-depository subsidiaries to deal with Fidelity is limited by the affiliate
transaction rules, including Sections 23A and 23B of the Federal Reserve Act,
which also govern BIF-insured banks. With very limited exceptions, these rules
require that all transactions between Fidelity and an affiliate must be on arms'
length terms. The term "affiliate" covers any company that controls or is under
common control with Fidelity, but does not include individuals and generally
does not include Fidelity's subsidiaries.
Under Section 23A and Section 11 of the HOLA, specific restrictions apply
to transactions in which Fidelity provides funding to its affiliates: Fidelity
may not purchase the securities of an affiliate, make a loan to any affiliate
that is engaged in activities not permissible for a bank holding company, or
acquire from an affiliate any asset that has been classified, a nonaccrual loan,
a restructured loan, or a loan that is more than 30 days past due. As to
affiliates engaged in bank holding company-permissible activities, the aggregate
of (a) loans, guarantees, and letters of credit provided by the savings bank for
the benefit of any one affiliate, and (b) purchases of assets by the savings
bank from the affiliate, may not exceed 10% of the savings bank's capital stock
and surplus (20% for the aggregate of permissible transactions with all
affiliates). All loans to affiliates must be secured by collateral ranging from
100% to 130% of the amount of the loan, depending on the type of collateral.
In addition, OTS regulations on affiliate transactions require, among other
things, that savings institutions retain records of their affiliate transactions
that reflect such transactions in reasonable detail. If a savings institution
has been the subject of a change of control application or notice within the
preceding two-year period, does not meet its minimum capital requirements, has
entered into a supervisory agreement, is subject to a formal enforcement
proceeding, or is determined by the OTS to be the subject of supervisory
concern, the institution may be required to provide the OTS with 30 days' prior
notice of any affiliate transaction.
Under OTS regulatory limitations, loans by Fidelity to directors, executive
officers and 10% stockholders of Fidelity, Bank Plus, and Bank Plus'
subsidiaries (collectively, "insiders"), or to a corporation or partnership that
is at least 10% owned by an insider (a "related interest") are subject to limits
separate from the affiliate transaction rules. However, a company that controls
a savings institution is excluded from the coverage of the insider lending rules
even if it owns 10% or more of the stock of the institution, and is subject only
to the affiliate transaction rules. All loans to insiders and their related
interests must be underwritten and made on non-preferential terms; loans in
excess of $500,000 must be approved in advance by Fidelity's Board of Directors;
and Fidelity's total of such loans may not exceed 100% of Fidelity's unimpaired
capital and unimpaired surplus. Loans by Fidelity to its executive officers are
subject to additional limits which are even more stringent. In addition to these
regulatory limitations, Fidelity has adopted a policy which requires prior
approval of its Board of Directors for any loans to insiders or their related
interests.
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ENFORCEMENT. Whenever the OTS has reasonable cause to believe that the
continuation by a savings and loan holding company of any activity or of
ownership or control of any non FDIC-insured subsidiary constitutes a serious
risk to the financial safety, soundness, or stability of a savings and loan
holding company's subsidiary savings institution and is inconsistent with the
sound operation of the savings institution, the OTS may order the holding
company, after notice and opportunity for a hearing, to terminate such
activities or to divest such noninsured subsidiary. FIRREA also empowers the
OTS, in such a situation, to issue a directive without any notice or opportunity
for a hearing, which directive may (a) limit the payment of dividends by the
savings institution, (b) limit transactions between the savings institution and
its holding company or its affiliates, and (c) limit any activity of the
association that creates a serious risk that the liabilities of the holding
company and its affiliates may be imposed on the savings institution.
In addition, FIRREA includes savings and loan holding companies within the
category of person designated as "institution-affiliated parties." An
institution-affiliated party may be subject to significant penalties and/or loss
of voting rights in the event such party took any action for or toward causing,
bringing about, participating in, counseling, or aiding and abetting a violation
of law or unsafe or unsound practice by a savings institution.
FIDELITY REGULATION--COMMUNITY REINVESTMENT ACT
The Community Reinvestment Act ("CRA") requires each savings institution,
as well as other lenders, to identify and delineate the communities served
through and by the institution's offices and to affirmatively meet the credit
needs of its delineated communities and to market the types of credit the
institution is prepared to extend within such communities. The CRA also requires
the OTS to assess the performance of the institution in meeting the credit needs
of its community and to take such assessment into consideration in reviewing
applications for mergers, acquisitions, and other transactions. An
unsatisfactory CRA rating may be the basis for denying such an application.
Performance is assessed on the basis of an institution's actual lending, service
and investment performance rather than the extent to which the institution
conducts needs assessments, documents community outreach or complies with other
procedural requirements. In connection with its assessment of CRA performance,
the OTS assigns a rating of "outstanding," "satisfactory," "needs improvement"
or "substantial noncompliance." Based on its most recent examination, Fidelity
was rated "satisfactory."
FIDELITY REGULATION--FEDERAL HOME LOAN BANK SYSTEM
The Federal Home Loan Banks provide a credit facility for member
institutions. As a member of the FHLB of San Francisco, Fidelity is required to
own capital stock in the FHLB of San Francisco in an amount at least equal to
the greater of 1% of the aggregate principal amount of its unpaid home loans,
home purchase contracts and similar obligations at the end of each calendar
year, assuming for such purposes that at least 30% of its assets were home
mortgage loans, or 5% of its advances from the FHLB of San Francisco. At
December 31, 1999, Fidelity was in compliance with this requirement with an
investment in the stock of the FHLB of San Francisco of $31.1 million. Long-term
FHLB advances may be obtained only for the purpose of providing funds for
residential housing finance and all FHLB advances must be secured by specific
types of collateral.
FIDELITY REGULATION--FEDERAL RESERVE SYSTEM
The FRB requires savings institutions to maintain noninterest-earning
reserves against certain of their transaction accounts (primarily deposit
accounts that may be accessed by writing unlimited checks) and non-personal time
deposits. For the calculation period at December 31, 1999, Fidelity was required
to maintain $8.4 million in noninterest-earning reserves and was in compliance
with this requirement. The balances maintained to meet the reserve requirements
imposed by the FRB may be used to satisfy Fidelity's liquidity requirements
discussed above.
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As a creditor and a financial institution, Fidelity is subject to certain
regulations promulgated by the FRB, including, without limitation, Regulation B
(Equal Credit Opportunity Act), Regulation D (Reserves), Regulation E
(Electronic Funds Transfers Act), Regulation F (limits on exposure to any one
correspondent depository institution), Regulation Z (Truth in Lending Act),
Regulation CC (Expedited Funds Availability Act), and Regulation DD (Truth in
Savings Act). As creditors of loans secured by real property and as owners of
real property, financial institutions, including Fidelity, may be subject to
potential liability under various statutes and regulations applicable to
property owners, generally including statutes and regulations relating to the
environmental condition of the property.
NON-BANKING REGULATION
Under various federal, state and local environmental laws and regulations,
a current or previous owner or operator of real property may be liable for the
costs of removal or remediation of hazardous substances on, under or in such
property. In addition, any person or entity who arranges for the disposal or
treatment of hazardous substances may also be liable for the costs of removal or
remediation of hazardous substances at the disposal or treatment facility. Such
laws and regulations often impose liability regardless of fault and liability
has been interpreted to be joint and several unless the harm is divisible and
there is a reasonable basis for allocation of responsibility. Pursuant to these
laws and regulations, under certain circumstances, a lender may become liable
for the environmental liabilities in connection with its borrowers' properties,
if, among other things, it either forecloses or participates in the management
of its borrowers' operations or hazardous substance handling or disposal
practices. Although the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 ("CERCLA") and certain state counterparts provide
exemptions for secured lenders, the scope of such exemptions is limited and a
rule issued by the Environmental Protection Agency clarifying such exemption
under CERCLA has recently been held invalid. In addition, CERCLA and certain
state counterparts impose a statutory lien, which may be prior to a bank's
interest securing a loan, for certain costs incurred in connection with removal
or remediation of hazardous substances. Other laws and regulations may also
require the removal or remediation of hazardous substances located on a property
before such property may be sold or transferred.
It is the Bank's current policy to identify and review certain
environmental issues pertaining to its borrowers and the properties securing the
loans of its borrowers prior to making any loan and foreclosing on any
multifamily property. If such review reveals any environmental issues, a Phase I
environmental audit (which generally involves a physical inspection without any
sampling) and under certain circumstances, a Phase II environmental audit (which
generally involves sampling) may be conducted by an independent environmental
consultant. It is also the Bank's current policy with respect to loans secured
by residential property with five or more units to automatically conduct a Phase
I environmental audit prior to foreclosing on such property. Under certain
circumstances, the Bank may decide not to foreclose on a property. There can be
no assurances that such review, Phase I environmental audits or Phase II
environmental audits have identified or will identify all potential
environmental liabilities that may exist with respect to a foreclosed property
or a property securing any loan or that historical, current or future uses of
such property or surrounding properties will not result in the imposition of
environmental liability on the Bank.
The Bank is aware that certain current or former properties on which it has
foreclosed and properties securing its loans contain contamination or hazardous
substances, including asbestos and lead paint. Under certain circumstances, the
Bank may be required to remove or remediate such contamination or hazardous
substances. Although the Bank is not aware of any environmental liability
relating to these properties that it believes would have a material adverse
effect on its business or results of operations, there can be no assurances that
the costs of any required removal or remediation would not be material or
substantially exceed the value of affected properties or the loans secured by
the properties or that the Bank's ability to sell any foreclosed property would
not be adversely affected.
22
<PAGE>
FINANCIAL SERVICES MODERNIZATION LEGISLATION
On November 12, 1999, President Clinton signed into law the
Gramm-Leach-Bliley Act of 1999 (the "Financial Services Modernization Act"). The
Financial Services Modernization Act repeals the two affiliation provisions of
the Glass-Steagall Act: Section 20, which restricted the affiliation of Federal
Reserve Member Banks with firms "engaged principally" in specified securities
activities; and Section 32, which restricts officer, director, or employee
interlocks between a member bank and any company or person "primarily engaged"
in specified securities activities. In addition, the Financial Services
Modernization Act also contains provisions that expressly preempt any state law
restricting the establishment of financial affiliations, primarily related to
insurance. The general effect of the law is to establish a comprehensive
framework to permit affiliations among commercial banks, insurance companies,
securities firms, and other financial service providers by revising and
expanding the BHCA framework to permit a holding company system to engage in a
full range of financial activities through a new entity known as a Financial
Holding Company. "Financial activities" is broadly defined to include not only
banking, insurance, and securities activities, but also merchant banking and
additional activities that the Federal Reserve Board, in consultation with the
Secretary of the Treasury, determines to be financial in nature, incidental to
such financial activities, or complementary activities that do not pose a
substantial risk to the safety and soundness of depository institutions or the
financial system generally.
Generally, the Financial Services Modernization Act:
o Repeals historical restrictions on, and eliminates many federal and
state law barriers to, affiliations among banks, securities firms,
insurance companies, and other financial service providers;
o Provides a uniform framework for the functional regulation of the
activities of banks, savings institutions, and their holding
companies;
o Broadens the activities that may be conducted by national banks,
banking subsidiaries of bank holding companies, and their financial
subsidiaries;
o Provides an enhanced framework for protecting the privacy of consumer
information;
o Adopts a number of provisions related to the capitalization,
membership, corporate governance, and other measures designed to
modernize the FHLB system;
o Modifies the laws governing the implementation of the CRA, and
o Addresses a variety of other legal and regulatory issues affecting
both day-to-day operations and long-term activities of financial
institutions.
The Financial Services Modernization Act also permits national banks to
engage in expanded activities through the formation of financial subsidiaries. A
national bank may have a subsidiary engaged in any activity authorized for
national banks directly or any financial activity, except for insurance
underwriting, insurance investments, real estate investment or development, or
merchant banking, which may only be conducted through a subsidiary of a
Financial Holding Company. Financial activities include all activities permitted
under new sections of the BHCA or permitted by regulation.
A national bank seeking to have a financial subsidiary, and each of its
depository institution affiliates, must be "well-capitalized" and
"well-managed." The total assets of all financial subsidiaries may not exceed
the lesser of 45% of a bank's total assets, or $50 billion. A national bank must
exclude from its assets and equity all equity investments, including retained
earnings, in a financial subsidiary. The assets of the subsidiary may not be
consolidated with the bank's assets. The bank must also have policies and
procedures to assess financial subsidiary risk and protect the bank from such
risks and potential liabilities.
The Financial Services Modernization Act also includes a new section of the
FDIA governing subsidiaries of state banks that engage in "activities as
principal that would only be permissible" for a national bank to conduct in a
financial subsidiary. It expressly preserves the ability of a state bank to
retain all existing subsidiaries.
23
<PAGE>
The Company and the Bank do not believe that the Financial Services
Modernization Act will have a material adverse effect on our operations in the
near-term. However, to the extent that it permits banks, securities firms and
insurance companies to affiliate, the financial services industry may experience
further consolidation. The Financial Services Modernization Act is intended to
grant to community banks certain powers as a matter of right that larger
institutions have accumulated on an ad hoc basis. Nevertheless, this act may
have the result of increasing the amount of competition that the Company and the
Bank face from larger institutions and other types of companies offering
financial products, many of which may have substantially more financial
resources than the Company and the Bank.
GATEWAY REGULATION
Gateway has been an NASD registered broker/dealer since October 1993 and
offers securities products, such as mutual funds and variable annuities, to
customers of the Bank and others. Fixed annuities are offered through the Bank's
insurance agency, Citadel Service Corporation, dba Fidelity Insurance Agency of
Glendale. Gateway does not maintain security or cash accounts for customers or
perform custodial functions relating to customer securities.
Gateway is required to conduct its activities in compliance with the
February 1994 interagency guidelines of the federal bank and thrift regulators
on retail sales of uninsured, nondeposit investment products by federally
insured financial institutions. The interagency guidelines require that, among
other things, customers be fully informed that investment products are not
insured, are not deposits of or guaranteed by the Bank and involve investment
risk including the potential loss of principal.
The securities business is subject to regulation by the Securities and
Exchange Commission ("SEC") and other federal and state agencies. Regulatory
violations can result in the revocation of broker/dealer licenses, the
imposition of censures or fines and the suspension or expulsion from the
securities business of a firm, its officers or employees. With the enactment of
the Insider Trading and Securities Fraud Enforcement Act of 1988, the SEC and
the securities exchanges have intensified their regulation of broker/dealers,
emphasizing in particular the need for supervision and control by broker/dealers
of their own employees. In August of 1998, Gateway was audited by the NASD and
in 1994 by the SEC and the State of California Department of Corporations.
Effective February 15, 1998, the NASD modified its Conduct Rules governing
the activities of NASD members that are conducting broker/dealer services on the
premises of a financial institution where retail deposits are taken. The main
focus of the new rules is to minimize confusion by retail customers. The new
rules cover the location setting, networking and brokerage affiliate agreements,
customer disclosure and written acknowledgment, communications with the public
and notifications of terminations.
As a broker/dealer registered with the NASD, Gateway is subject to the
SEC's uniform net capital rules, designed to measure the general financial
condition and liquidity of a broker/dealer. Gateway is required to file monthly
reports with the NASD and annual reports with the NASD and SEC containing
detailed financial information with respect to its broker/dealer operation.
ITEM 2. PROPERTIES
The executive offices of Fidelity are located at 4565 Colorado Boulevard,
Los Angeles, California 90039. This facility also houses the Bank's
administrative operations and has approximately 130,000 square feet of office
space. The Bank also leases administrative offices in an adjacent building at
4563 Colorado Boulevard (15,500 square feet), in Beaverton, Oregon
(approximately 45,000 square feet) and in Irvine, California (approximately
20,000 square feet).
On December 31, 1999, Fidelity owned 8 of its branch facilities and leased
the remaining 28 of its branch facilities under leases with terms (including
optional extension periods) expiring from 2000 through 2030. All owned and
leased office facilities are located in Southern California with the exceptions
of the credit processing center located in Beaverton, Oregon and a branch office
located in Bloomington, Minnesota. The amount of office space, either leased or
owned, is sufficient to meet the Company's anticipated facilities requirements
for the foreseeable future.
24
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
MMG CREDIT CARD LITIGATION
In November 1997, the Bank entered into a credit card marketing
relationship with MMG pursuant to which MMG was to solicit members of certain
agreed-upon affinity groups to become credit card holders. The Bank was to
contract for the provision of or provide credit card servicing and other related
functions. MMG and the Bank were to share equally in program profits and losses.
In late summer and fall of 1998, disputes arose between the parties.
On September 8, 1998, the Bank instituted an arbitration proceeding in Los
Angeles based upon such claims, entitled IN THE MATTER OF ARBITRATION BETWEEN
FIDELITY FEDERAL BANK AND MMG DIRECT, INC., American Arbitration Association No.
72 147 01072 98. In October 1998, the Bank reasserted MMG's defaults and
terminated the MMG contract. MMG instituted three proceedings against the Bank
in Texas seeking to litigate, rather than arbitrate, the disputes between the
parties claiming large sums in compensatory and punitive damages against the
Bank. Ultimately, after filing a proceeding to compel arbitration, the Bank was
successful in enforcing the arbitration provision in its contract with MMG and
the matter was arbitrated during spring and early summer of 1999 with MMG and
the Bank each asserting their claims.
The arbitrator issued his award of arbitration on September 15, 1999. In
that award, the arbitrator (i) terminated the marketing agreements between the
parties, as requested by the Bank and excused the parties from any existing or
future obligations; (ii) gave the Bank the right to sell or otherwise dispose of
the credit card portfolio generated under the marketing agreements; (iii)
ordered the Bank to pay MMG certain fees owed by the Bank to MMG which were not
disputed but which the Bank withheld during the course of the dispute as a
prejudgment offset; (iv) ordered the Bank to pay MMG's legal fees in the amount
of $1.0 million; and (v) ordered the Bank to pay MMG for its share of the
arbitration costs. The award declared that it constituted a full and final
settlement of all claims and counterclaims between the parties as set forth in
their arbitration pleadings.
The arbitrator's award was confirmed into a judgment at the joint request
of the parties and the Bank has satisfied all obligations under the judgment.
Disputes arose between the Bank and MMG with respect to certain matters not
clearly disposed of by the arbitrator's award, which generated a further legal
proceeding instituted by MMG in Texas. In late November of 1999, the parties
resolved those disputes and executed a settlement agreement releasing any and
all claims held by either party. As a part of the settlement agreement, MMG was
obligated to dismiss the Texas proceeding it brought following the arbitrator's
award, but to date has failed to do so, giving rise to a claim by the Bank
against MMG and others that there has been a breach of the settlement agreement.
NATIONWIDE CAPITAL COMPANY LLC CREDIT CARD LITIGATION
As a part of the affinity credit card marketing program with MMG, the Bank
entered into an agreement with Nationwide Capital Company, L.L.C.
("Nationwide"), which purported to have arrangements with automobile dealers
through which dealer-branded credit cards would be issued to customers of the
dealers. The Nationwide contract expressly provided that it could be terminated
upon termination of the Bank's contract with MMG.
On November 30, 1999, Nationwide filed a plea in intervention against the
Bank in the District Court, 116th Judicial District, Dallas County, Texas, Cause
No. DV-99-01269, entitled NATIONWIDE CAPITAL COMPANY, L.L.C.,
PLAINTIFF/INTERVENOR v. FIDELITY FEDERAL BANK, F.S.B., THIRD PARTY DEFENDANT. In
that action, Nationwide alleges that the Bank wrongfully interfered with
Nationwide's contracts with MMG and with certain automobile dealers. Nationwide
seeks unspecified actual and exemplary damages.
25
<PAGE>
The Bank filed a motion to strike the plea in intervention and to compel
Nationwide to arbitrate its disputes with the Bank pursuant to the terms of its
contract with the Bank. That motion was denied by the Texas Court on March 23,
2000. The Bank intends to appeal the Texas Court's denial of the Bank's motion.
The Bank has also filed an action against Nationwide in the Federal District
Court for the Central District of California styled FIDELITY FEDERAL BANK, A
FEDERAL SAVINGS BANK, PETITIONER v. NATIONWIDE CAPITAL CO., L.L.C., RESPONDENT,
Case No. 99-13428AHM, seeking to compel Nationwide to arbitrate its disputes
with the Bank. The Bank believes that Nationwide's claims against it are without
merit and the Bank intends to defend itself vigorously.
PURPORTED CLASS ACTION LITIGATION
On October 19, 1998, a purported class action was filed against the Company
and its current and immediately preceding chief executive officers. The case was
originally entitled HOWARD GUNTY PROFIT SHARING PLAN, BOTH INDIVIDUALLY AND ON
BEHALF OF ALL OTHERS SIMILARLY SITUATED, PLAINTIFFS v. RICHARD M. GREENWOOD,
MARK K. MASON, BANK PLUS CORPORATION, AND DOES 1 THROUGH 50, INCLUSIVE,
DEFENDANTS, Los Angeles Superior Court, Central Judicial District, Case No.
BC199336 ("Gunty I"). This action originally alleged that the Company failed to
make adequate public disclosure concerning losses in the Bank's credit card
operations during the period from August 14, 1998 (when the Company filed its
quarterly report on Form l0-Q for the second quarter) through September 22, 1998
(when the Company issued a press release concerning its credit card losses). An
amended complaint was filed in the Los Angeles Superior Court, Central Judicial
District, Case No. BC199336, entitled HOWARD GUNTY PROFIT SHARING PLAN AND
ROBERT E. YELIN, BOTH INDIVIDUALLY AND ON BEHALF OF THE YELIN FAMILY TRUST U/A,
BOTH INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, PLAINTIFFS, v.
RICHARD M. GREENWOOD, MARK K. MASON, BANK PLUS CORPORATION, AND DOES 1 THROUGH
50, INCLUSIVE ("Gunty II"). The amended complaint purports to expand the class
period to extend from March 30, 1998 through September 22, 1998. The complaint
includes claims for negligent misrepresentation, common law fraud, statutory
fraud and violations of the California Corporations Code.
On September 20, 1999, a second purported class action was filed against
the Company and its current and immediately preceding chief executive officers.
The case is entitled GARY FELDMAN AND PETER WACHTEL, EACH INDIVIDUALLY AND ALSO
ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, PLAINTIFFS v. BANK PLUS CORPORATION,
RICHARD M. GREENWOOD, MARK K. MASON AND DOES 1 THROUGH 50 INCLUSIVE, DEFENDANTS,
Superior Court of the State of California, County of Los Angeles, Case No. BC
217063. Except for the named individual plaintiffs' dates of purchase and
certain other minor variations, the FELDMAN complaint is virtually identical to
the Gunty II complaint and was filed by the same plaintiffs' counsel. The
Company believes the claims in FELDMAN are barred by the Security Litigation
Reform Standards Act of 1998 ("SLUSA"), which requires securities fraud actions
commenced after the date of SLUSA's enactment to be brought in federal court
under federal law. The Company removed the FELDMAN case to the Federal District
Court preparatory to seeking a dismissal on the merits under SLUSA, but
plaintiffs voluntarily dismissed their case before such a motion could be heard.
Plaintiffs have not sought to refile the FELDMAN suit.
Plaintiffs have recently filed a motion for class certification in the
GUNTY II case. The Bank and the individual defendants have filed an opposition
raising substantial issues as to the suitability of the proposed representative
plaintiff to act as such and further asserting that all claims aside from those
on file in the original GUNTY II complaint are preempted under SLUSA. If any
class is certified, the Bank believes that it has significant defenses and it
intends to defend vigorously against plaintiffs' claims.
ADC CREDIT CARD LITIGATION
Approximately 100 lawsuits, on behalf of approximately 200 individual
plaintiffs, and two purported class actions, are pending in state and federal
courts in the State of Alabama against Fidelity and, in most instances, ADC,
Bank Plus, and various manufacturers and distributors of consumer appliances. In
addition, the Bank and Bank Plus have been sued in three cases in state court in
the State of Mississippi on behalf of 62 individual plaintiffs (the Mississippi
cases have been removed to Federal Court in that state), and the Bank has been
sued in a state court in the State of West Virginia on behalf of one individual
plaintiff (the West Virginia case has been removed to a Federal Court in that
state). All of these cases arise out of the affinity credit card program between
the Bank and ADC in which independent third-party direct marketers sold consumer
appliances and concurrently offered consumers an opportunity to apply for a
credit card arranged by ADC and issued by the Bank which was then used to pay
for the appliance.
26
<PAGE>
During the past several years, the press has widely reported certain
industry related concerns which may affect us. Some of these involve the amount
of litigation instituted against banks, finance companies and insurance
companies who have operated in the State of Alabama and the large punitive
awards obtained from juries in that state. Like other companies in this
industry, we are involved in a number of lawsuits in Alabama, many of which
relate to the financing of consumer products, primarily vacuum cleaners, under
the ADC program. The Bank discontinued financing such consumer products under
the ADC program in early 1999. The judicial climate in Alabama is such that the
outcome of all of these cases is unpredictable.
The plaintiffs in the litigation are cardholders who allege, generally,
that misrepresentations were made to them by the sales people in connection with
their purchases of the consumer appliances and applications for credit card
accounts, including misrepresentations with respect to the nature and cost of
financing such purchases through credit cards issued by the Bank. The Bank
believes that it has substantial legal and factual defenses to these claims in
that it did not control, direct, or otherwise have any dealings with the sales
people who allegedly made such misrepresentations, and the financing and other
terms of the credit cards were disclosed in writing to cardholders by the Bank.
The Bank also believes that the majority of the plaintiffs claims are subject to
adjudication under Federal laws. Most of the cases are in discovery. Although
our counsel believes the Bank has substantive legal defenses to these claims and
are prepared to defend each case vigorously, no assurances can be given that the
cases can be settled or otherwise resolved on terms that are not material in
relation to the financial condition or result of operations of the Company.
The Bank is a beneficiary of agreements in which ADC and the distributors
of the consumer appliances covenanted to indemnify and defend the Bank against
potential claims relating to the program. The Bank believes that the claims of
the plaintiffs are within the scope of the indemnity and defense covenants, and
the Bank has demanded that ADC and the distributors indemnify the Bank and
provide a defense. Since the commencement of these cases ADC has performed its
obligation to provide a defense to the Bank. However, so far as is known, ADC is
no longer actively in business, and uncertainty exists as to ADC's financial
ability to indemnify or continue to provide a defense to the Bank. Thus far the
distributors have either not responded to the Bank's demands for indemnity and
defense, denied such demands, or declined to respond until such time as the
distributors have had additional opportunity to investigate the claims.
DURGA MA ARBITRATION
In April 1998, the Bank entered into two Private Label Credit Card
Agreements with Durga Ma, a New Jersey corporation, doing business as Diamond
Way International. One of those agreements contemplated issuing credit cards to
Durga Ma's jewelry customers; the other contemplated issuing cards to customers
of independent jewelry retailers selected by Durga Ma. According to the
agreements, the Bank would issue credit cards to customers whose applications
were approved by the Bank. The Bank would have the exclusive right to issue
credit cards bearing the name of Durga Ma or Diamond Way International to
qualified customers. The agreements provided that Bank would own the cards and
pay to Durga Ma 2.0% of finance charges collected. Durga Ma would be responsible
for developing, printing and distributing marketing materials. The agreements
call for binding arbitration in the event of disputes.
In October 1999, Durga Ma invoked binding arbitration subsequent to Bank's
decision to issue no credit cards under the agreement. Durga Ma alleges "breach
of contract and fraud" and claims damages in the amount of $5.0 million. The
Bank intends to defend itself vigorously in the arbitration.
27
<PAGE>
INTERNET CASINO LITIGATION
The Bank and Mastercard International, Inc. have been named as defendants
in a purported class action filed July 27, 1999 in the United States District
Court for the Middle District of Alabama, entitled EVELYN L. BROWN, ON BEHALF OF
HERSELF AND ALL OTHERS SIMILARLY SITUATED vs. MASTERCARD INTERNATIONAL, INC. AND
FIDELITY FEDERAL BANK, Civil Action Case No. CV 99-A-788-N. The plaintiff
alleges that she placed bets through a gambling site on the internet. The
internet site instructed her to open an account by entering her credit card
number. By this means, the plaintiff's gambling expenses incurred on the
internet site were charged to a Mastercard issued to the plaintiff by the Bank.
The plaintiff alleges that, in allowing its credit card to be used for illegal
gambling, the Bank violated a variety of Federal and State statutes, including
the Wire Act (18 U.S.C. Section 1084(a)), the Travel Act (18 U.S.C. Section
1952), a Federal statute that specifically prohibits conducing an illegal
gambling business (18 U.S.C. Section 1955), the Racketeer Influenced and Corrupt
Organizations Act ("RICO")(18 U.S.C. Section 1962(c) and 1964(a)), and a number
of Alabama statutes. The plaintiff seeks certification of a class, declaratory
relief voiding her credit card charges, unspecified compensatory damages, triple
exemplary damages under RICO, punitive damages, and attorneys fees and costs.
The Bank and Mastercard have filed motions to dismiss the case. The Bank
believes that it should not have liability and has substantial legal defenses to
the lawsuit and the Bank intends to defend itself vigorously.
This lawsuit is substantially similar to a number of lawsuits filed around
the country against credit card issuers, Mastercard, and Visa. The plaintiff
sought to have the lawsuit consolidated with similar lawsuits in a Federal court
in New York. On March 1, 2000, the Judicial Panel on Multidistrict Litigation
consolidated the case with four others and ordered that all five of the cases be
transferred to the U.S. District Court for the Eastern District of Louisiana.
FIRST ALLIANCE MORTGAGE COMPANY
In 1997, Fidelity entered into a series of agreements with FAMCO and its
affiliates to establish a secured credit card program (the "Program"). Under the
agreements, Fidelity serves as issuer and owner of the Program accounts and is
responsible for the risk management associated with the extension of credit.
FAMCO is responsible for marketing and processing applications and servicing the
accounts originated under the Program. FAMCO also provides credit enhancements
to guarantee full repayment of the Program receivables in the event of
cardholder defaults and, in exchange, has the right to purchase the outstanding
receivables at par and receives all revenues, net of expenses and funding costs
paid to Fidelity, from the Program. FAMCO is required to fund a cash collateral
account as part of the credit enhancement. As of February 29, 2000, total
receivables outstanding under the Program were $16.4 million and the balance of
the cash collateral account was $2.7 million.
On February 25, 2000, Fidelity delivered to FAMCO formal notice that the
agreements pertaining to the Program have expired, and a demand that FAMCO
fulfill all of its obligations under the agreements upon and after termination,
including an obligation to purchase, or cause a designee to purchase, from
Fidelity, at par, all of the outstanding accounts and related receivables
generated under the Program.
Also on February 25, 2000, Fidelity filed with the American Arbitration
Association in Los Angeles, California a formal demand for arbitration. The
arbitration proceeding is designated FIDELITY FEDERAL BANK, FSB v. FIRST
ALLIANCE ACCEPTANCE CORP. AND FIRST ALLIANCE MORTGAGE CORP., File No. 72 148 226
00. The arbitration demand alleges that a dispute exists between the parties
because FAMCO contends that it has no obligation to comply with Fidelity's
demand that FAMCO purchase, or cause a designee to purchase, from Fidelity, at
par, all of the outstanding accounts and related receivables generated under the
Program.
On February 23, 2000, FAMCO filed a complaint in the Superior Court of the
State of California for the County of Orange entitled FIRST ALLIANCE MORTGAGE
COMPANY v. FIDELITY FEDERAL BANK, FSB, Case No. 00CC02476. The complaint seeks a
temporary restraining order and preliminary and permanent injunctions enjoining
Fidelity from disrupting the status quo under the Program and from converting
any funds in the cash collateral account for any purpose other than as expressly
authorized in the Program agreements. The complaint also seeks a release and
turn over to FAMCO of all funds in the cash collateral account. A hearing was
held on FAMCO's application for a temporary restraining order with regard to
such relief and the court denied FAMCO's application. No hearing was set for
FAMCO's application for a preliminary injunction.
Fidelity believes that its demand that FAMCO or its designee purchase at
par the outstanding accounts and receivables generated by the Program is
meritorious, and intends to proceed diligently with arbitration to enforce its
rights with respect thereto. Fidelity believes that the claims asserted by FAMCO
in its lawsuit against Fidelity are without merit, and Fidelity intends to
defend itself diligently against FAMCO's claims.
28
<PAGE>
OTHER MATTERS
In the course of its current compliance examination of the Bank, the OTS
has raised concerns regarding the Bank's credit card operations, principally
with respect to the credit card origination, servicing and collection activities
of third parties under contracts that have been terminated or are in the process
of winding down. While these third parties were required to satisfy regulatory
requirements applicable to their respective functions, it is possible that the
Bank may be held responsible for violations by these third parties. The Bank has
responded to preliminary issues raised by the OTS, but the OTS has not issued
its final report. The Bank is therefore, uncertain as to the OTS' ultimate
determinations on these issues, and possible resulting regulatory actions or
sanctions may have a material adverse effect on the financial condition or
results of operations of the Company.
The legal responsibility and financial exposure with respect to some of the
foregoing claims and other matters presently cannot be reasonably ascertained
and, accordingly, there is a risk that the outcome of one or more of these
outstanding claims or matters could result in a material adverse effect on the
financial condition or results of operations of the Company.
In the normal course of business, the Company and certain of its
subsidiaries have a number of other lawsuits and claims pending. Although there
can be no assurance, the Company believes that none of these other lawsuits or
claims will have a material adverse effect on the financial condition or
business of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
MARKET INFORMATION
The Company's Common Stock is listed and quoted on the Nasdaq National
Market ("Nasdaq").
The following table sets forth the high and low daily closing sales prices
of the Common Stock on Nasdaq for each of the following quarters.
HIGH LOW
1999: ----------- -----------
Fourth quarter.................................... $ 4.25 $ 2.69
Third quarter..................................... 6.38 3.13
Second quarter.................................... 6.38 4.06
First quarter..................................... 5.13 3.94
1998:
Fourth quarter.................................... $ 4.94 $ 2.28
Third quarter..................................... 12.63 4.13
Second quarter.................................... 16.13 12.13
First quarter..................................... 15.63 11.63
29
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DIVIDENDS
Bank Plus has paid no dividends on the Common Stock since its formation in
May 1996. Prior thereto, Fidelity had not paid dividends on its Common Stock
since August 1994. Bank Plus currently has no plans to pay dividends on the
Common Stock. Bank Plus is a holding company with no significant assets other
than its investment in the Bank and Gateway, and is substantially dependent on
dividends from such subsidiaries to meet its cash requirements, including its
interest obligations on the Senior Notes. The ability of the Bank to pay
dividends or to make certain loans or advances to Bank Plus is subject to
significant regulatory restrictions.
30
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
FIVE-YEAR SELECTED FINANCIAL DATA
The table below sets forth certain historical financial data regarding the
Company. This information is derived in part from, and should be read in
conjunction with, the Company's consolidated financial statements and notes
thereto.
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
1999 1998 1997 1996 1995
------------- ------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets............................... $ 2,683,452 $ 3,712,059 $ 4,167,806 $ 3,330,290 $ 3,299,444
Mortgage loans............................. 1,962,201 2,417,042 2,819,230 2,757,807 3,028,291
Credit card loans.......................... 207,180 350,078 50,828 -- --
Deposits................................... 2,501,246 2,922,531 2,891,801 2,495,933 2,600,869
FHLB advances (1).......................... 20,000 585,000 1,009,960 449,851 292,700
Senior Notes (2)........................... 51,478 51,478 51,478 -- --
Other borrowings........................... -- -- -- 140,000 150,000
Preferred stock (2)........................ 272 272 272 51,750 51,750
Common stockholders' equity................ 96,176 127,388 181,345 161,657 177,293
Stockholders' equity per common share (3).. 4.94 6.55 9.36 8.86 9.72
Common shares outstanding (3).............. 19,463,343 19,434,043 19,367,215 18,245,265 18,242,465
OPERATING DATA:
Interest income............................ $ 250,691 $ 300,347 $ 255,007 $ 237,913 $ 246,477
Interest expense........................... 143,973 209,204 174,009 152,623 174,836
Net interest income........................ 106,718 91,143 80,998 85,290 71,641
Provision for estimated loan losses (4).... 78,800 73,032 13,004 15,610 69,724
Noninterest income (expense) (5)........... 49,360 34,418 3,890 2,246 11,062
Operating expense (6)...................... 102,140 104,959 63,096 82,451 81,954
(Loss) earnings before income taxes........ (24,862) (52,430) 8,788 (10,525) (68,975)
Net (loss) earnings........................ (24,890) (56,328) 12,653 (14,089) (68,979)
Net (loss) earnings available for common
Stockholders............................. (24,890) (56,328) 12,653 (15,642) (68,979)
(Loss) Earnings Per Share (3):
Basic.................................... (1.28) (2.90) 0.67 (0.86) (8.84)
Diluted.................................. (1.28) (2.90) 0.66 (0.86) (8.84)
Weighted Average Common Shares Outstanding (3):
Basic.................................... 19,460,941 19,395,337 18,794,887 18,242,887 7,807,201
Diluted.................................. 19,460,941 19,395,337 19,143,233 18,242,887 7,807,201
SELECTED OPERATING RATIOS:
(Loss) return on average assets............ (0.76)% (1.32)% 0.35% (0.42)% (1.92)%
(Loss) return on average equity............ (21.19)% (33.71)% 7.43% (7.01)% (42.31)%
Average equity divided by average assets... 3.59% 3.92% 4.67% 6.71% 4.54%
Ending equity divided by ending assets..... 3.58% 3.43% 4.35% 4.85% 6.94%
Operating expense to average assets (7).... 3.12% 2.46% 1.73% 1.94% 2.28%
Efficiency ratio (8)....................... 67.14% 76.10% 67.46% 67.77% 89.81%
Yield on interest-earning assets........... 7.86% 7.30% 7.16% 7.29% 7.04%
Cost of interest bearing liabilities....... 4.59% 5.16% 5.11% 4.98% 5.15%
Net yield on interest-earning assets....... 3.36% 2.22% 2.27% 2.63% 2.05%
ASSET QUALITY DATA:
Nonperforming assets ("NPAs") (9).......... $ 9,396 $ 23,304 $ 25,367 $ 60,788 $ 71,431
NPAs to total assets....................... 0.35% 0.63% 0.61% 1.83% 2.16%
Nonaccruing loans ("NPLs")................. $ 6,945 $ 14,372 $ 13,074 $ 36,125 $ 51,910
NPLs to total loans, net................... 0.32% 0.54% 0.46% 1.34% 1.77%
Classified assets.......................... $ 82,110 $ 133,085 $ 153,502 $ 174,096 219,077
Classified assets to total assets.......... 3.06% 3.59% 3.68% 5.23% 6.64%
Total allowance for estimated losses....... $ 63,608 $ 109,198 $ 55,993 $ 59,589 $ 92,927
Total allowance for estimated losses to
net classified assets.................... 77.47% 82.05% 36.48% 34.23% 42.42%
(CONTINUED)
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
1999 1998 1997 1996 1995
------------- ------------- ------------- ------------- -------------
(CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
REGULATORY CAPITAL RATIOS:
Tangible capital ratio..................... 5.22% 4.36% 5.26% 6.28% 6.91%
Core capital ratio......................... 5.22% 4.36% 5.26% 6.29% 6.92%
Risk-based capital ratio................... 10.09% 8.95% 11.57% 11.85% 12.43%
OTHER DATA:
Sales of investment products............... $ 164,921 $ 180,660 $ 159,791 $ 118,061 $ 89,824
Real estate loans funded, net.............. $ 93,274 $ 138,991 $ 233,107 $ 13,859 $ 19,396
Number of:
Real estate loan accounts (in thousands). 9 11 12 11 12
Deposit accounts (in thousands).......... 177 198 205 194 207
</TABLE>
- --------------
(1) In 1999 and 1998, as part of its program to improve its regulatory capital
status, the Bank prepaid $290.0 million and $375.0 million, respectively,
of FHLB advances.
(2) On July 18, 1997, the Company completed an exchange offer (the "Exchange
Offer") of the Company's Senior Notes for the outstanding shares of the
Preferred Stock issued by Fidelity in 1995. The Company accepted 2,059,120
shares of Preferred Stock in exchange for approximately $51.5 million
principal amount of Senior Notes. Holders of approximately 11,000 shares of
the Preferred Stock elected not to participate in the Exchange Offer and
these shares are reflected as minority interest on the statement of
financial condition.
(3) On February 9, 1996, the Bank's stockholders approved a one for four
reverse stock split. All per share data and weighted average common shares
outstanding have been retroactively adjusted to reflect this change.
(4) Provision for estimated loan losses in 1995 include significant provisions
related to the resolution of assets in the Bank's multifamily loan
portfolio. In 1999 and 1998, the provision for estimated loan losses
increased significantly due to credit losses in the Bank's credit card loan
portfolio.
(5) In 1999 and 1998, noninterest income increased significantly related to the
growth of the credit card programs. Credit card fees were $29.7 million and
$21.4 million in 1999 and 1998, respectively.
(6) Operating expenses in 1996 included a payment of $18.0 million SAIF special
assessment. In 1999 and 1998, operating expenses of the credit card
operations were $33.0 million and $25.3 million, respectively.
(7) Excludes the impact of the 1996 SAIF special assessment.
(8) The efficiency ratio is computed by dividing total operating expense by net
interest income and noninterest income, excluding infrequent items,
provisions for estimated loan and real estate losses, direct costs of real
estate operations and gains/losses on the sale and writedown of securities.
(9) NPAs include NPLs and foreclosed real estate, net of SVAs and REO valuation
allowances, if any.
32
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Certain statements included in this Annual Report on Form 10-K, including
without limitation statements containing the words "believes", "anticipates",
"intends", "expects" and words of similar import, constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act.
Such forward-looking statements involve known and unknown risks, uncertainties
and other factors that may cause the actual results, performance or achievements
of Bank Plus and Fidelity to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. A number of other factors may have a material adverse effect on the
Company's financial performance. These factors include a national or regional
economic slowdown or recession which increases the risk of defaults and credit
losses; movements in market interest rates that reduce our margins or the fair
value of the financial instruments we hold; restrictions imposed on the Bank's
operations by regulators such as a prohibition on the payment of dividends to
Bank Plus; failure of regulatory authorities to issue approvals or non-objection
to material transactions involving the Bank; actions by the Bank's regulators
that could adversely affect the Bank's capital levels; an increase in the number
of customers seeking protection under the bankruptcy laws which increases the
amount of charge-offs; the effects of fraud or other contract breaches by third
parties or customers; the effectiveness of the Company's collection efforts; the
outcome of pending and future litigation; the inability to achieve the financial
goals in Bank Plus' strategic plan; the inability to successfully implement
planned systems conversions and the inability to use the operating loss
carryforwards of the Company. Given these uncertainties, undue reliance should
not be placed on such forward-looking statements. Bank Plus disclaims any
obligation to update any such factors or to publicly announce the results of any
revisions to any of the forward-looking statements included herein to reflect
future events or developments.
RESULTS OF OPERATIONS
SUMMARY
The Company reported net losses of $24.9 million for the year ended
December 31, 1999, as compared to net losses of $56.3 million for the year ended
December 31, 1998. The decrease in losses of $31.4 million in 1999 as compared
to 1998 is due to an increase in earnings in the core bank operations of $18.6
million and a decrease in losses of $12.8 million in the credit card operations.
The increase in earnings of the core bank operations was primarily the
result of decreased operating expenses of $10.5 million due to the elimination
of a number of business initiatives, increased noninterest income of $6.7
million primarily due to a gain on the sale of two branches, and lower income
tax expense. These positive variances were offset by lower net interest income
of $3.3 million due to a reduction in interest earning assets in 1999.
The decrease in losses of the credit card operations was primarily the
result of an increase in net interest income of $18.9 million due to both higher
balances of credit cards outstanding and a higher net interest margin and an
increase in noninterest income of $8.3 million due, also, to higher balances of
credit cards outstanding. These positive variances were offset by increases in
provisions for estimated loan losses due to higher delinquencies and charge-offs
and increased operating expenses due to the increase in the average number of
credit cards serviced.
33
<PAGE>
The decrease in earnings of $69.0 million in 1998, as compared to 1997 is
primarily due to the $72.5 million of losses incurred in the credit card
operations in 1998, as compared to earnings of $1.1 million in 1997 offset by a
$4.2 million decrease in minority interest in 1998. The credit card operations
losses were primarily the result of a $86.4 million increase in provisions for
estimated loan losses due to higher delinquencies and charge-offs. Net interest
income and noninterest income net of operating expenses were $12.9 million
higher in 1998 than in 1997 due to the significant increase in the number and
balance of credit cards outstanding.
BUSINESS SEGMENTS
The following table shows the net income or loss for the core bank
operations and the credit card operations for the periods indicated. In
computing net interest income, funding costs are charged to the credit card
operations based on a rolling twelve-month average of one-year fixed rate FHLB
advances. All indirect general and administrative expense not specifically
identifiable with either of the two business segments are allocated on the basis
of direct operating expenses. Indirect general and administrative expenses
subject to allocation were $10.5 million and $11.9 million for 1999 and 1998,
respectively, with no corresponding amount in 1997.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1999 1998 1997
------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
CORE BANK OPERATIONS:
Net interest income...................................... $ 69,931 $ 73,253 $ 79,976
Provision for estimated loan losses (1).................. (14,300) (13,413) 13,004
Noninterest income....................................... 13,753 13,003 3,845
Gain on sale of branches................................. 5,914 -- --
Operating expense........................................ 69,101 79,620 63,096
Income tax expense (benefit)............................. -- 3,870 (8,100)
------------- ------------- -------------
Net earnings (2)....................................... $ 34,797 $ 16,179 $ 15,821
============= ============= =============
Operating Ratios:
Net interest margin.................................... 2.26% 1.81% 2.05%
Efficiency ratio....................................... 80.68% 88.33% 67.46%
Return on average assets............................... 1.09% 0.38% 0.35%
Return on average equity............................... 37.46% 10.86% 7.43%
Selected Average Balance Sheet Components:
Loans.................................................. $ 2,240,849 $ 2,665,050 $ 2,797,556
Earning assets......................................... 3,108,536 4,057,172 3,545,741
Total assets........................................... 3,192,646 4,204,914 3,633,695
Deposits............................................... 2,638,472 2,994,618 2,642,560
CREDIT CARD OPERATIONS:
Net interest income...................................... $ 36,787 $ 17,890 $ 1,022
Provision for estimated loan losses...................... 93,100 86,445 --
Noninterest income....................................... 29,693 21,415 45
Operating expense........................................ 33,039 25,339 --
------------- ------------- -------------
Net loss (2)........................................... $ (59,659) $ (72,479) $ 1,067
============= ============= =============
Operating Ratios:
Net interest margin.................................... 12.95% 8.69% 8.10%
Efficiency ratio....................................... 49.70% 64.47% N/A
Selected Average Balance Sheet Components:
Credit card loans...................................... $ 283,435 $ 205,921 $ 12,637
Total assets........................................... 228,688 168,610 12,802
</TABLE>
- ----------------
(1) Negative amounts represent recoveries of previously established allowance
for loan losses.
(2) The segment earnings reported in the table do not include preferred
dividends paid to holders of the preferred stock issued by Fidelity Federal
Bank. These dividends are reported as minority interest in subsidiary in
the consolidated financial statements and were $28,000 in 1999 and 1998 and
$4.2 million in 1997.
34
<PAGE>
CORE BANK OPERATIONS
During 1997 and 1998, a number of business initiatives outside of the
existing retail branch system were undertaken in the core bank operations. These
included a financial education program for members of CalPERS, electronic
commerce activities, a planned name change, an indirect auto lending program and
a mall branch strategy. As a result of the disappointing results of these
programs and of the credit card operations, changes were made in the Company's
executive management and in the core bank operations strategic plan during the
fourth quarter of 1998.
Under the revised strategic plan, the core bank operations are focused on
the retail branch system and the establishment of mortgage origination
operations. In addition, as a consequence of its efforts to augment the Bank's
regulatory capital ratios, the core bank operations total assets decreased by
$1.3 billion from June 30, 1998 to December 31, 1999.
Net interest income for 1999 was $69.9 million as compared to $73.3 million
for 1998. Decreases in average interest earning assets of 26% were for the most
part offset by improvements in the interest margin produced by the Bank's
deposit repricing strategy and decreases in wholesale borrowings, which
increased the net yield on interest earning assets to 2.26% for 1999 from 1.81%
for 1998.
The negative provisions for loan losses of $14.3 million and $13.4 million
in 1999 and 1998, respectively, represent net recoveries of specific valuation
reserves and reduced estimates of future loan losses resulting from the
continuing improvement in the asset quality of the Bank's mortgage loan
portfolio.
Operating expenses decreased to $69.1 million in 1999 from $79.6 million in
1998 primarily due to changes in the Bank's strategic plan in 1998 which
resulted in the discontinuance of a number of business initiatives including
electronic commerce activities, as well as other expense reduction efforts.
These decreases were offset by a $4.6 million increase in SAIF assessments in
1999.
The $6.7 million decrease in net interest income between 1998 and 1997
reflects the decrease in the net yield to 1.81% from 2.05% offset by a 10.2%
increase in the average balance of interest-earning assets. The net yield
decreased due to the use of higher costing CDs and FHLB advances to fund the
increase in interest-earning assets, higher prepayments on the MBS portfolio
causing an increased amortization of the purchase premiums and the amortization
of losses incurred in the second quarter of 1998 on the hedging program for
fixed rate MBS. These were partially offset by a lower average balance of NPLs.
The increases in the average balances of interest-earning assets are due to
increases in MBS and the short-term investment portfolios.
The negative provision for loan losses of $13.4 million in 1998 as compared
to the provision for loan losses of $13.0 million represents net recoveries of
specific valuation reserves and reduced estimates of loan losses in 1998
resulting from the significant improvement in the asset quality of the Bank's
mortgage loan portfolio.
Noninterest income increased by $9.2 million to $13.0 million for 1998 from
$3.8 million for 1997. Components of the increase in noninterest income in 1998
from 1997 include (a) an increase in automated teller machine ("ATM") cash
services income of $2.3 million, which was due to higher cash balances
outstanding for the period based on a higher number of ATMs serviced; (b)
decreased real estate operations costs of $3.8 million primarily due to improved
execution of REO sales and a lower volume of foreclosed properties; (c) an
increase in investment products and loan fee income of $2.2 million due to a
higher sales volumes; and (d) lower losses on securities activities of $1.3
million, which represented hedge losses on the MBS portfolio of $4.0 million
offset by gains on the sale of securities and recoveries related to past loan
securitizations. These favorable variances were offset by $1.3 million in
prepayment expenses on the early repayment of FHLB advances related to the
Bank's efforts to augment the Bank's regulatory capital ratios by reducing
assets.
Operating expenses increased by $16.5 million to $79.6 million for 1998
compared to $63.1 for 1997. The increase in expenses was due primarily to costs
associated with new business initiatives. The CalPERS, mall branch strategy,
Internet bank and other projects contributed $11.5 million to the increase in
operating expenses for 1998.
35
<PAGE>
CREDIT CARD OPERATIONS
Cards issued and balances outstanding under the credit card programs, which
the Bank began in 1997, grew rapidly in the second and third quarters of 1998
after which the Bank curtailed the origination of new accounts due to the very
disappointing performance of the credit card portfolio. Since that time the
Company has concentrated on reducing the operating losses from the credit card
operations, which decreased to $59.7 million in 1999 from $72.5 million in 1998.
Net interest income for 1999 increased to $36.8 million from $17.9 million
in 1998 primarily due to higher average earning asset balances of $283.4 million
in 1999 compared to $205.9 million in the prior year, and an increase in the
interest margin to 13.0% in 1999 from 8.7% in 1998. As a result of the
termination of the agreement with ADC in November 1998, the Bank became entitled
to all of the interest from the related portfolio which increased the gross
yield for that portfolio. This change along with a change in the composition of
the balances of the respective credit card programs resulted in the increase in
net yield in 1999.
The increase in the provision for estimated loan losses to $93.1 million
for 1999 from $86.4 million in 1998 was primarily a result of increases in
delinquencies in the ADC portfolio in the second quarter of 1999, the impact of
which more than offset both the decrease in total balances outstanding and the
improving delinquency trends in the other programs in the portfolio.
Credit card fees increased to $29.7 million in 1999 from $21.4 million in
the prior year due to an increase in the average number of accounts outstanding.
Included in credit card fees are origination fees net of origination costs and
annual fees, which are deferred and amortized into income over a 12 month
period, interchange fees, late payment fees and other ancillary fees. Credit
card origination costs represented marketing fees paid to MMG to originate cards
under the MMG credit card program. During 1999 and 1998, the Company recognized
$9.0 million and $6.4 million of net origination fees. At December 31, 1999,
there were no deferred net origination fees to be amortized into income.
Operating expenses increased to $33.0 million in 1999 from $25.3 million in
1998, primarily reflecting higher servicing costs due to the higher average
number of accounts serviced in 1999 due in part to the transfer of servicing of
the ADC portfolio to the Bank at the beginning of 1999.
The change in all earnings components for 1998 as compared to 1997 reflects
the increase in the average balance of credit cards outstanding, which increased
from $12.6 million in 1997 when the credit card portfolio was started to $205.9
million in 1998. In addition, the credit cards originated in 1997 were under the
credit enhancement programs, where the credit card marketers received all credit
card revenues and were responsible for credit losses and operating expenses,
including a cost of funds charge paid to the Bank.
The increase in provisions for estimated loan losses of $86.4 million for
1998 as compared to 1997, was primarily due to increasing delinquencies and
charge-offs in the rapidly growing credit card portfolio. Credit card balances
were $350.1 million as compared to $50.8 million, and delinquencies were 21.36%
as compared to 10.65% at December 31, 1998 and December 31, 1997, respectively.
Credit card charge-offs were $35.2 million in 1998, including $25.7 million of
loans purchased by marketers of the credit enhancement credit card programs,
with no comparable amounts in 1997.
36
<PAGE>
NET INTEREST INCOME
The following tables present the primary determinants of net interest
income for the periods indicated. For the purpose of this analysis, nonaccruing
mortgage loans are included in the average balances, and delinquent interest on
such loans has been deducted from interest income.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------------------------
1999 1998 1997
-------------------------------- --------------------------------------------- -------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
DAILY YIELD/ DAILY YIELD/ DAILY YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
----------- ---------- ------- ----------- ---------- ------- ----------- ---------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans...................... $2,240,849 $ 164,917 7.36% $2,665,050 $ 198,724 7.46% $2,797,556 $ 204,252 7.30%
Credit card loans.......... 283,435 47,538 16.77 205,921 26,305 12.77 12,637 1,023 8.10
MBS........................ 373,225 22,669 6.07 701,961 43,305 6.17 429,483 29,435 6.85
Investment securities...... 247,754 13,351 5.39 477,965 28,313 5.92 263,573 16,822 6.38
Investment in FHLB stock... 43,508 2,216 5.09 62,985 3,700 5.87 55,129 3,475 6.30
----------- ---------- ----------- ---------- ----------- ----------
Total interest-earning
assets................. 3,188,771 250,691 7.86 4,113,882 300,347 7.30 3,558,378 255,007 7.16
---------- ---------- ----------
Noninterest-earning assets... 87,110 144,742 88,119
----------- ----------- -----------
Total assets................. $3,275,881 $4,258,624 $3,646,497
=========== =========== ===========
Interest-bearing
liabilities:
Deposits:
Demand deposits.......... $ 374,719 4,683 1.25 $ 351,250 4,161 1.18 $ 282,886 3,451 1.22
Savings deposits......... 113,824 3,247 2.84 122,662 3,630 2.96 112,904 3,678 3.26
Time deposits............ 2,149,929 105,226 4.81 2,520,706 137,229 5.39 2,246,770 119,588 5.29
----------- ---------- ----------- ---------- ----------- ----------
Total deposits......... 2,638,472 113,156 4.28 2,994,618 145,020 4.84 2,642,560 126,717 4.80
Borrowings................. 486,855 30,817 6.31 1,056,866 64,184 6.07 764,350 47,292 6.19
----------- ---------- ----------- ---------- ----------- ----------
Total interest-bearing
liabilities............ 3,125,327 143,973 4.59 4,051,484 209,204 5.16 3,406,910 174,009 5.11
---------- ---------- ----------
Noninterest-bearing
liabilities................ 32,824 39,793 40,621
Preferred stock issued by
consolidated subsidiary.... 272 272 28,640
Stockholders' equity......... 117,458 167,075 170,326
----------- ----------- -----------
Total liabilities and equity. $3,275,881 $4,258,624 $3,646,497
=========== =========== ===========
Net interest income; interest
rate spread................ $ 106,718 3.27% $ 91,143 2.14% $ 80,998 2.05%
========== ======= ========== ======= ========== =======
Net yield on interest
earning assets............. 3.36% 2.22% 2.27%
========== ======= =======
</TABLE>
Net interest income is primarily affected by (a) the average volume and
repricing characteristics of the Company's interest-earning assets and
interest-bearing liabilities, (b) the level and volatility of market interest
rates, (c) the level of NPLs, and (d) the interest rate spread between the
yields earned and the rates paid.
37
<PAGE>
The following tables present the dollar amount of changes in interest
income and expense for each major component of interest-earning assets and
interest-bearing liabilities and the amount of change attributable to changes in
average balances and average rates for the periods indicated. Because of
numerous changes in both balances and rates, it is difficult to allocate
precisely the effects thereof. For purposes of these tables, the change due to
volume is initially calculated as the change in average balance multiplied by
the average rate during the prior period and the change due to rate is
calculated as the change in average rate multiplied by the average volume during
the prior period. Any change that remains unallocated after such calculations is
allocated proportionately to changes in volume and changes in rates.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
COMPARED TO COMPARED TO
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
FAVORABLE (UNFAVORABLE) FAVORABLE (UNFAVORABLE)
---------------------------------- -----------------------------------
VOLUME RATE NET VOLUME RATE NET
---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Loans.................................... $ (31,181) $ (2,626) $ (33,807) $ (9,899) $ 4,371 $ (5,528)
Credit card loans........................ 11,589 9,644 21,233 24,364 918 25,282
MBS...................................... (19,946) (690) (20,636) 17,044 (3,174) 13,870
Investment securities.................... (12,617) (2,345) (14,962) 12,782 (1,291) 11,491
Investment in FHLB stock................. (1,038) (446) (1,484) 473 (248) 225
---------- ---------- ---------- ---------- ---------- ----------
Total interest income.................. (53,193) 3,537 (49,656) 44,764 576 45,340
---------- ---------- ---------- ---------- ---------- ----------
Interest expense:
Deposits:
Demand deposits........................ (276) (246) (522) (824) 114 (710)
Savings deposits....................... 245 138 383 (305) 353 48
Time deposits.......................... 18,482 13,521 32,003 (15,273) (2,368) (17,641)
---------- ---------- ---------- ---------- ---------- ----------
Total deposits...................... 18,451 13,413 31,864 (16,402) (1,901) (18,303)
Borrowings............................... 35,814 (2,447) 33,367 (17,823) 931 (16,892)
---------- ---------- ---------- ---------- ---------- ----------
Total interest expense................. 54,265 10,966 65,231 (34,225) (970) (35,195)
---------- ---------- ---------- ---------- ---------- ----------
Increase (decrease) in net interest income.. $ 1,072 $ 14,503 $ 15,575 $ 10,539 $ (394) $ 10,145
========== ========== ========== ========== ========== ==========
</TABLE>
INCOME TAXES
For federal income tax purposes, the maximum rate of tax applicable to
savings institutions is currently 35% for taxable income over $10 million. For
California franchise tax purposes, savings institutions are taxed as "financial
corporations" at a higher rate than that applicable to nonfinancial corporations
because of exemptions from certain state and local taxes. The California
franchise tax rate applicable to financial corporations is 11.0%.
The Company's combined federal and state statutory tax rate is 42.0% of
earnings before income taxes. For 1999, the Company's actual effective income
tax rate was zero. This rate differs from the statutory rate primarily due to
the establishment of additional valuation allowances. The 1998 effective tax
expense rate of 7.4% reflects the federal and state tax expense attributable to
the payment of alternative minimum tax, the establishment of valuation
allowances and the Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS 109"), limitations on the recognition of
deferred tax assets.
38
<PAGE>
Under SFAS No. 109, the recognition of a deferred tax asset is dependent
upon a "more likely than not" expectation of realization of the deferred tax
asset, based upon the analysis of available evidence. A valuation allowance is
required to sufficiently reduce the deferred tax asset to the amount that is
expected to be realized on a "more likely than not" basis. The analysis of
available evidence is performed each quarter utilizing the "more likely than
not" criteria to determine the amount, if any, of the deferred tax asset to be
realized. Adjustments to the valuation allowance are made accordingly. There can
be no assurance that the Company will recognize additional portions of the
deferred tax asset in future periods or that additional valuation allowances may
not be recorded in future periods.
In accordance with SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" ("SFAS 115"), certain securities were classified as
AFS during the year. Under SFAS No. 115, adjustments to the fair market value of
securities held as AFS are reflected through an adjustment to stockholders'
equity. No associated deferred tax asset was recorded in stockholder's equity as
of December 31, 1999 and 1998.
The Internal Revenue Service is currently examining the federal income tax
returns for the short year ended December 31, 1994, and the calendar years 1995,
1996 and 1997. The Company does not expect the results of this audit to have a
material adverse effect on the consolidated financial statements of the Company.
Internal Revenue Code ("IRC") Sections 382 and 383 and the Treasury
Regulations thereunder generally provide for limitations on the ability of a
corporation to utilize net operating loss ("NOL") or credit carryforwards to
offset taxable income or reduce its tax liability in taxable years following a
change of control. In addition, the rules restrict the ability of a corporation
to recognize certain losses during the first five years after a change of
control if the losses existed, but were not recognized, as of the date of the
change of control. In general, the annual limitation with respect to these items
is determined by computing the product of the fair market value of the
corporation immediately prior to the change of control and the federal long-term
tax exempt interest rate in effect at that time, as prescribed by the IRS.
As of December 31, 1999, the Bank had an estimated NOL carryover for
federal income tax purposes of $99.7 million expiring in years 2008 through
2019. Of this amount, $59.8 million is subject to annual utilization limitations
imposed by IRC Section 382. For California franchise tax purposes, the Bank had
an estimated NOL carryover of $45.4 million. Of the estimated California NOL
carryover, $41.8 million expires in years 2000 through 2004, and $3.6 million
expires in years 2000 through 2009. Of the total $45.4 million California NOL,
$15.7 million is subject to annual utilization limitations imposed by IRC
Section 382.
Under the provisions of SFAS No. 109, a deferred tax liability has not been
provided for the tax bad debt and loan loss reserves that arose in years prior
to 1988. The Bank had an adjusted pre-1988 total loan loss reserve balance of
$26.3 million at December 31, 1999, for which no income taxes have been
provided. The remaining adjusted pre-1988 total loan loss reserve will be
recaptured into taxable income in the event Fidelity (1) ceases to be a "bank"
or "thrift", (2) makes distributions to shareholders in excess of current or
accumulated post-1951 earnings and profits, or (3) makes distributions to
shareholders in a partial or complete redemption or liquidation. The Bank does
not intend to enter into a transaction that would result in a recapture of
pre-1988 reserves if such recapture would create an additional tax liability.
39
<PAGE>
FINANCIAL CONDITION
As with most thrifts, a significant portion of the Company's revenue is
derived from net interest income earned on its assets. The Company's interest
earning assets are primarily loans and investment securities.
LOAN PORTFOLIO
The Company's loan portfolio consists of single family and multifamily
mortgage loans, commercial mortgage loans, credit card loans and other consumer
loans. The following table sets forth the composition of the total loans at the
dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------- ------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
LOANS BY TYPE
Residential loans:
Single family (1 to 4 units).......... $ 550,840 $ 768,824 $ 960,848 $ 836,569 $ 939,903
Multifamily:
5 to 36 units....................... 1,125,304 1,220,585 1,343,597 1,408,317 1,521,056
37 units and over................... 201,644 247,638 308,473 307,741 329,916
------------- ------------- ------------- ------------- -------------
Total multifamily................. 1,326,948 1,468,223 1,652,070 1,716,058 1,850,972
------------- ------------- ------------- ------------- -------------
Total residential loans................. 1,877,788 2,237,047 2,612,918 2,552,627 2,790,875
------------- ------------- ------------- ------------- -------------
Other real estate loans:
Commercial & industrial............... 125,379 179,956 204,656 203,510 234,384
Land and land improvements............ 38 39 1,656 1,670 3,032
------------- ------------- ------------- ------------- -------------
Total other real estate loans........... 125,417 179,995 206,312 205,180 237,416
------------- ------------- ------------- ------------- -------------
Gross mortgage loans.................... 2,003,205 2,417,042 2,819,230 2,757,807 3,028,291
------------- ------------- ------------- ------------- -------------
Credit card loans:
MMG................................... 95,879 170,922 229 -- --
ADC................................... 96,498 147,344 50,467 -- --
Other................................. 18,266 31,812 132 -- --
------------- ------------- ------------- ------------- -------------
Total credit card loans................. 210,643 350,078 50,828 -- --
------------- ------------- ------------- ------------- -------------
Other loans............................. 14,259 29,884 12,084 6,373 6,040
------------- ------------- ------------- ------------- -------------
Total loans, gross...................... 2,228,107 2,797,004 2,882,142 2,764,180 3,034,331
------------- ------------- ------------- ------------- -------------
Less:
Undisbursed loan funds................ -- 42 1,710 -- --
Unearned (premiums) discounts, net.... (8,163) (4,227) (2,722) 1,974 2,463
Deferred loan fees.................... 6,611 29,442 9,039 12,767 7,317
Allowances for estimated loan losses.. 60,278 106,171 50,538 57,508 89,435
------------- ------------- ------------- ------------- -------------
Total............................... 58,726 131,428 58,565 72,249 99,215
------------- ------------- ------------- ------------- -------------
Total loans, net........................ $ 2,169,381 $ 2,665,576 $ 2,823,577 $ 2,691,931 $ 2,935,116
============= ============= ============= ============= =============
</TABLE>
The Bank has experienced a decreasing mortgage loan portfolio since 1994
when any substantive mortgage loan origination operations ceased. The increases
in the deferred loan fees and allowances for estimated loan losses in 1998
primarily relate to the credit card portfolio which the Bank began originating
in 1997.
40
<PAGE>
The following table details the activity in the gross loan portfolio for
the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------- ------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Principal balance at beginning of period. $ 2,797,004 $ 2,882,142 $ 2,764,180 $ 3,034,331 $ 3,364,965
Total real estate loans funded........... 93,274 138,991 233,107 13,859 19,396
Loans sold, net.......................... (125,812) (97,452) (6,674) 2,069 (113,230)
Amortization and prepayments............. (361,973) (418,322) (236,389) (208,992) (143,989)
Foreclosures............................. (14,343) (27,774) (75,385) (77,585) (92,661)
Hancock Savings Bank, FSB ("Hancock")
loans acquired........................ -- -- 146,802 -- --
(Decrease) increase in credit card loans. (139,434) 299,249 50,828 -- --
Other (decrease) increase in total
loans, net............................ (20,609) 20,170 5,673 498 (150)
------------- ------------- ------------- ------------- -------------
Principal balance at end of period....... $ 2,228,107 $ 2,797,004 $ 2,882,142 $ 2,764,180 $ 3,034,331
============= ============= ============= ============= =============
REAL ESTATE LOANS FUNDED
Loans originated:
Single family (1 to 4 units)........ $ 19,697 $ 2,558 $ 836 $ -- $ 3,926
Multifamily:
5 to 36 units.................... 2,627 192 7,373 1,673 4,743
37 units and over................ 3,232 18 1,144 3,628 3,207
------------- ------------- ------------- ------------- -------------
Total multifamily.............. 5,859 210 8,517 5,301 7,950
Commercial & industrial............. 805 5,324 2,150 533 6,586
------------- ------------- ------------- ------------- -------------
Total real estate loans
originated.................... 26,361 8,092 11,503 5,834 18,462
------------- ------------- ------------- ------------- -------------
Loans purchased:
Single family (1 to 4 units) (1).... 66,486 130,699 219,082 7,763 (1,237)
Multifamily:
5 to 36 units.................... -- 50 338 -- --
37 units and over................ 427 150 2,184 -- --
------------- ------------- ------------- ------------- -------------
Total multifamily.............. 427 200 2,522 -- --
Commercial & industrial............. -- -- -- 262 2,171
------------- ------------- ------------- ------------- -------------
Total real estate loans
purchased..................... 66,913 130,899 221,604 8,025 934
------------- ------------- ------------- ------------- -------------
Total real estate loans funded........... $ 93,274 $ 138,991 $ 233,107 $ 13,859 $ 19,396
============= ============= ============= ============= =============
LOANS SOLD
Whole loans........................... $ 133,002 $ 99,964 $ 13,516 $ 4,508 $ 123,080
Repurchases........................... (7,190) (2,512) (6,842) (6,577) (9,850)
------------- ------------- ------------- ------------- -------------
Loans sold (repurchased), net ........... $ 125,812 $ 97,452 $ 6,674 $ (2,069) $ 113,230
============= ============= ============= ============= =============
</TABLE>
- ----------------
(1) Net of repurchases.
Beginning in 1994, the Bank entered into agreements with established
providers of consumer credit products pursuant to which all mortgage products
made available to retail branch customers were referred to and underwritten,
funded and serviced by third parties. In 1999, the Bank began a loan origination
operation to return to the single family loan origination business. A total of
$26.4 million in loans were originated in 1999, of which $11.5 million were sold
and $14.9 were held in the portfolio. Another $66.5 million in single family
loans were purchased in 1999 related to the nonconforming loan division of the
Bank that was established in the third quarter of 1998. In the first quarter of
2000, the Bank began originating commercial and multifamily mortgages.
Of the $361.9 million in amortization and prepayments of mortgage loans in
1999, approximately $295 million was due to prepayments. Prepayments increased
in 1999 and 1998 due to lower market interest rates and improving real estate
prices in Southern California. During the third quarter of 1999, as part of the
efforts to augment the Bank's regulatory capital ratios, $120 million in single
family loans were sold.
41
<PAGE>
The decrease in credit card loans was due to decreases of $50.8 million and
$75.0 million in the ADC and MMG credit card portfolios, respectively, primarily
related to charge-offs. As a result of the discontinuance of originations under
the ADC, MMG and FAMCO programs, credit card loan balances are expected to
continue to decrease in 2000.
The following table presents gross mortgage loans by type and location as
of December 31, 1999:
<TABLE>
<CAPTION>
COMMERCIAL
MULTIFAMILY & INDUSTRIAL
------------------------ ------------------------
SINGLE 5 TO 36 37 UNITS HOTEL/ OTHER
FAMILY UNITS AND OVER MOTEL C&I TOTAL
----------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
California:
Southern California Counties:
Los Angeles............................. $ 206,838 $ 826,122 $ 133,796 $ 7,010 $ 66,073 $1,239,839
Orange.................................. 87,043 123,679 18,369 982 23,317 253,390
San Diego............................... 21,548 60,039 19,707 -- 1,183 102,477
San Bernardino.......................... 25,793 22,823 8,726 -- 5,296 62,638
Riverside............................... 18,811 15,262 4,222 -- 6,129 44,424
Ventura................................. 16,997 22,705 2,722 -- 3,236 45,660
Other................................... 13,983 19,625 3,275 2,296 2,430 41,609
----------- ----------- ----------- ----------- ----------- -----------
Total Southern California counties..... 391,013 1,090,255 190,817 10,288 107,664 1,790,037
Northern California counties............. 89,199 35,049 9,716 1,102 4,157 139,223
----------- ----------- ----------- ----------- ----------- -----------
Total California........................ 480,212 1,125,304 200,533 11,390 111,821 1,929,260
Other states.............................. 70,628 -- 1,111 1,538 668 73,945
----------- ----------- ----------- ----------- ----------- -----------
Gross mortgage loans...................... $ 550,840 $1,125,304 $ 201,644 $ 12,928 $ 112,489 $2,003,205
=========== =========== =========== =========== =========== ===========
</TABLE>
The following table sets forth, by contractual maturity and loan type, the
loan portfolio at December 31, 1999. The table does not consider the prepayment
experience of the loan portfolio when scheduling the maturities of loans.
<TABLE>
<CAPTION>
MATURES IN
---------------------------------------------------
TOTAL LOANS 2001- AFTER
RECEIVABLE 2000 2006 2006
--------------- --------------- --------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Residential loans:
Single family (1 to 4 units)....... $ 550,840 $ 5,553 $ 10,704 $ 534,583
Multifamily:
5 to 36 units.................... 1,125,304 24,854 254,951 845,499
37 units and over................ 201,644 1,611 59,570 140,463
--------------- --------------- --------------- ---------------
Total multifamily.............. 1,326,948 26,465 314,521 985,962
--------------- --------------- --------------- ---------------
Total residential loans........ 1,877,788 32,018 325,225 1,520,545
--------------- --------------- --------------- ---------------
Other real estate loans:
Commercial and industrial.......... 125,379 16,768 92,493 16,118
Land & land improvements........... 38 -- -- 38
--------------- --------------- --------------- ---------------
Total other real estate loans.... 125,417 16,768 92,493 16,156
--------------- --------------- --------------- ---------------
Gross mortgage loans................. 2,003,205 48,786 417,718 1,536,701
--------------- --------------- --------------- ---------------
Credit card loans.................... 210,643 210,643 -- --
Other loans.......................... 14,259 4,346 3,090 6,823
--------------- --------------- --------------- ---------------
Total loans, gross................... $ 2,228,107 $ 263,775 $ 420,808 $ 1,543,524
=============== =============== =============== ===============
</TABLE>
42
<PAGE>
The following table sets forth, by contractual maturity and interest rate,
the fixed rate and adjustable rate mortgage loan portfolios at December 31,
1999. The table does not consider the prepayment experience of the loan
portfolio when scheduling the maturities of loans.
<TABLE>
<CAPTION>
MATURITIES
GREATER WEIGHTED
MORTGAGE LOANS MATURES THAN AVERAGE
RECEIVABLE IN 2000 ONE YEAR SPREAD
-------------- -------------- -------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Adjustable rate loans:
COFI-- 1 month.................. $ 1,390,712 $ 41,116 $ 1,349,596 2.47%
COFI-- 6 month.................. 322,420 5,564 316,856 2.34
COFI-- other.................... 8,983 189 8,794 1.89
Treasury Bill-- 12 months....... 43,050 -- 43,050 2.98
Treasury Bill-- other........... 18,846 1,353 17,493 2.95
Other........................... 98,055 151 97,904 5.04
-------------- -------------- --------------
Total adjustable rate loans.... 1,882,066 48,373 1,833,693
Fixed rate loans.................... 121,139 413 120,726
-------------- -------------- --------------
Total mortgage loans, gross......... $ 2,003,205 $ 48,786 $ 1,954,419
============== ============== ==============
</TABLE>
At December 31, 1999, 45.8% of the credit card portfolio is fixed rate,
45.5% adjusts with the Wall Street prime rate and 8.7% adjusts with LIBOR.
During 1999, the actual rate charged on the credit card accounts ranged from 13%
to 25%.
INVESTMENT PORTFOLIO
The following table reconciles the amortized cost and aggregate fair value
of the investment securities and MBS AFS portfolios at December 31, 1999:
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED AGGREGATE
COST LOSSES FAIR VALUE
-------------- -------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
MBS:
FHLMC.................................................. $ 2,334 $ (46) $ 2,288
FNMA................................................... 135,621 (5,854) 129,767
Government National Mortgage Association ("GNMA")...... 62,992 (1,946) 61,046
Fidelity participation certificates.................... 21,508 -- 21,508
CMO:
FNMA................................................. 37,983 (1,187) 36,796
Residential Asset Securitization Trust............... 5,834 (72) 5,762
Saxon Mortgage Securities Corp....................... 1,596 (47) 1,549
-------------- -------------- --------------
Total CMO.......................................... 45,413 (1,306) 44,107
-------------- -------------- --------------
Bear Stearns asset backed security..................... 22,056 (95) 21,961
Structured Asset Securities Corp. mortgage-backed note. 39,581 (25) 39,556
-------------- -------------- --------------
Total MBS AFS............................................. $ 329,505 $ (9,272) $ 320,233
============== ============== ==============
</TABLE>
43
<PAGE>
The Company has in the past employed various derivative financial
instruments to hedge valuation fluctuations in its trading and AFS fixed rate
securities portfolios. Realized gains and losses on termination of such hedge
instruments are amortized into interest income or expense over the expected
remaining life of the hedged asset. Realized losses related to a hedging program
for the fixed rate MBS AFS portfolio are recorded as adjustments to the cost
basis of the securities being hedged and are being amortized over the life of
the securities as a yield adjustment. During 1999, $0.7 million was amortized as
a reduction of interest income and the remaining balance of the realized hedge
losses was $2.5 million at December 31, 1999. As of December 31, 1999, the
Company had no derivative financial instruments outstanding.
The securities portfolio consisted of the following at the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------------------
1999 1998 1997
------------------------ ----------------------- ------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------------ -------- ------------ -------- ------------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Whole loan investment repurchase
agreements.............................. $ -- --% $ -- --% $ 28,000 7.19%
Federal funds sold........................ -- -- 220,000 4.36 -- --
------------ ------------ ------------
Total cash equivalents.................. -- -- 220,000 4.36 28,000 7.19
------------ ------------ ------------
Investment securities:
AFS:
U.S. Government and agency
obligations......................... -- -- -- -- 100,837 5.53
Other investments..................... -- -- 28,797 5.55 -- --
------------ ------------ ------------
Total AFS........................... -- -- 28,797 5.55 100,837 5.53
------------ ------------ ------------
Held to maturity:
Other investments..................... -- -- 1,084 6.19 3,189 6.00
------------ ------------ ------------
Total investment securities............... -- -- 29,881 5.57 104,026 5.54
------------ ------------ ------------
MBS:
AFS:
FHLMC................................. 2,288 7.21 3,791 6.00 10,275 6.35
FNMA.................................. 129,767 7.14 169,986 7.12 230,509 6.96
GNMA.................................. 61,046 7.15 86,556 7.00 222,808 6.98
Participation certificates............ 21,508 6.85 23,055 6.04 24,860 6.04
CMO................................... 44,107 8.32 88,672 7.10 343,212 7.22
LIBOR Asset Trust..................... -- -- -- -- 20,940 7.47
Financing note trust ................. -- -- 47,752 5.78 -- --
Asset backed security................. 21,961 6.61 -- -- -- --
Mortgage-backed note.................. 39,556 5.68 45,198 5.97 -- --
------------ ------------ ------------
Total AFS............................. 320,233 7.07 465,010 6.79 852,604 7.05
------------ ------------ ------------
Trading:
GNMA.................................. -- -- -- -- 41,050 6.66
------------ ------------ ------------
Total MBS................................. 320,233 7.07 465,010 6.79 893,654 7.03
------------ ------------ ------------
FHLB stock................................ 31,142 5.36 65,358 5.76 60,498 6.10
------------ ------------ ------------
Total securities portfolio.............. $ 351,375 6.92 $ 780,249 5.97 $ 1,086,178 6.85
============ ============ ============
</TABLE>
44
<PAGE>
The following table summarizes the maturity and weighted average yield of
investment securities at December 31, 1999:
<TABLE>
<CAPTION>
MATURES IN
-------------------------------------------------
TOTAL 2000 AFTER 2010
------------------------ ------------------------ -----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------------ ----- ------------ ----- ------------ -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
MBS, AFS............................ $ 320,233 7.07% $ 84,445 6.29% $ 235,788 7.35%
FHLB stock.......................... 31,142 5.36 31,142 5.36 -- --
------------ ------------ ------------
Total securities portfolio........ $ 351,375 6.92 $ 115,587 6.04 $ 235,788 7.35
============ ============ ============
</TABLE>
ASSET QUALITY
The Company's mortgage loan portfolio is primarily secured by assets
located in Southern California and is comprised principally of single family and
multifamily residential loans. At December 31, 1999, 24.0% of Fidelity's real
estate loan portfolio consisted of California single family residences (1 to 4
units), while 66.2% consisted of California multifamily dwellings of 5 or more
units.
Because 89.4% of the Company's mortgage loan portfolio is secured by
properties located in Southern California, the performance of the Company's
loans are particularly susceptible to the potential for declines in the Southern
California economy, such as increasing vacancy rates, declining rents,
increasing interest rates, declining debt coverage ratios, and declining market
values for single family, multifamily and commercial properties. In addition,
the possibility that borrowers may abandon properties or seek bankruptcy
protection with respect to income properties experiencing negative cash flow,
particularly where such properties are not cross-collateralized by other
performing assets, can also adversely affect portfolio performance.
During 1998, the Company significantly increased its credit card portfolio.
The performance of the Bank's credit card portfolio may be adversely affected by
a number of factors, including a national or regional economic slowdown or
recession, an increase in the number of customers seeking protection under the
bankruptcy laws, the effectiveness of the Company's collection efforts, and
fraud or breaches of contracts by third parties or customers. In addition,
because the portfolio is primarily sub-prime, the Bank may experience
significantly higher delinquencies and charge-offs than those experienced by
other credit card issuers whose portfolio's are not sub-prime.
45
<PAGE>
DELINQUENT LOANS
The following tables present net delinquent loans at the dates indicated:
<TABLE>
<CAPTION>
QUARTERS ENDED
--------------------------------------------------------------------
DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31, DECEMBER 31,
1999 1999 1999 1999 1998
------------ ------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Mortgage loan delinquencies by number of days:
30 to 59 days............................ $ 5,210 $ 6,641 $ 6,087 $ 5,026 $ 6,556
60 to 89 days............................ 3,871 2,633 2,264 4,001 4,936
90 days and over......................... 4,989 6,128 5,905 12,962 13,841
------------ ------------ ------------ ------------ ------------
Total....................................... $ 14,070 $ 15,402 $ 14,256 $ 21,989 $ 25,333
============ ============ ============ ============ ============
As a percentage of outstanding balances:
30 to 59 days............................ 0.26% 0.31% 0.27% 0.21% 0.27%
60 to 89 days............................ 0.19 0.13 0.10 0.17 0.21
90 days and over......................... 0.25 0.30 0.26 0.55 0.57
------------ ------------ ------------ ------------ ------------
Total....................................... 0.70% 0.74% 0.63% 0.93% 1.05%
============ ============ ============ ============ ============
Credit card loan delinquencies by number of days:
30 to 59 days............................ $ 11,157 $ 13,397 $ 15,666 $ 12,801 $ 19,609
60 to 89 days............................ 8,438 10,040 13,940 10,485 15,391
90 to 119 days........................... 7,596 9,877 12,075 11,101 17,969
120 to 149 days.......................... 7,213 9,443 8,460 11,148 17,363
150 days and over........................ 5,706 8,734 6,963 6,670 4,460
------------ ------------ ------------ ------------ ------------
Total....................................... $ 40,110 $ 51,491 $ 57,104 $ 52,205 $ 74,792
============ ============ ============ ============ ============
As a percentage of outstanding balances:
30 to 59 days............................ 5.30% 5.34% 5.60% 4.12% 5.60%
60 to 89 days............................ 4.00 4.00 4.98 3.38 4.40
90 to 119 days........................... 3.61 3.94 4.31 3.57 5.13
120 to 149 days.......................... 3.42 3.76 3.02 3.59 4.96
150 days and over........................ 2.71 3.48 2.49 2.15 1.27
------------ ------------ ------------ ------------ ------------
Total....................................... 19.04% 20.52% 20.40% 16.81% 21.36%
============ ============ ============ ============ ============
Other loan delinquencies by number of days:
30 to 59 days............................ $ 735 $ 745 $ 742 $ 1,002 $ 2,079
60 to 89 days............................ 234 379 364 182 533
90 days and over......................... 148 123 160 175 414
------------ ------------ ------------ ------------ ------------
Total....................................... $ 1,117 $ 1,247 $ 1,266 $ 1,359 $ 3,026
============ ============ ============ ============ ============
As a percentage of outstanding balances:
30 to 59 days............................ 7.49% 6.99% 6.07% 9.39% 8.48%
60 to 89 days............................ 2.38 3.56 2.98 1.71 2.18
90 days and over......................... 1.51 1.16 1.31 1.64 1.69
------------ ------------ ------------ ------------ ------------
Total....................................... 11.38% 11.71% 10.36% 12.74% 12.35%
============ ============ ============ ============ ============
</TABLE>
The quality of the mortgage loan portfolio continued to improve during 1999
as evidenced by historically low levels of delinquencies, NPLs and REO. At
December 31, 1999, mortgage delinquencies, NPLs and REO balances were 0.70%,
$6.9 million and $2.4 million, respectively.
46
<PAGE>
Credit card delinquencies decreased $34.7 million as of December 31, 1999
as compared to December 31, 1998. The decrease in the amount of delinquencies in
the credit card portfolio is due to the significant decline in credit card
balances.
The following table presents the credit card loan portfolio by program at
the dates indicated:
<TABLE>
<CAPTION>
QUARTERS ENDED
--------------------------------------------------------------------
DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31, DECEMBER 31,
1999 1999 1999 1999 1998
------------ ------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
MMG outstanding balances:
Current.................................. $ 78,510 $ 87,141 $ 95,145 $ 105,133 $ 116,431
Delinquencies:
30 to 59 days.......................... 4,407 5,344 6,291 6,064 11,810
60 to 89 days.......................... 3,617 4,107 5,260 5,765 10,089
90 to 119 days......................... 3,359 4,234 4,796 6,390 13,472
120 to 149 days........................ 3,425 4,163 3,942 7,689 14,660
150 days and over...................... 2,561 3,534 3,837 6,670 4,460
------------ ------------ ------------ ------------ ------------
Total delinquencies................. 17,369 21,382 24,126 32,578 54,491
------------ ------------ ------------ ------------ ------------
Total....................................... $ 95,879 $ 108,523 $ 119,271 $ 137,711 $ 170,922
============ ============ ============ ============ ============
As a percentage of outstanding
balances:
30 to 59 days............................ 4.60% 4.92% 5.27% 4.40% 6.91%
60 to 89 days............................ 3.77 3.78 4.41 4.19 5.90
90 to 119 days........................... 3.50 3.90 4.02 4.64 7.88
120 to 149 days.......................... 3.57 3.84 3.30 5.58 8.58
150 days and over........................ 2.67 3.25 3.22 4.84 2.61
------------ ------------ ------------ ------------ ------------
Total....................................... 18.11% 19.69% 20.22% 23.65% 31.88%
============ ============ ============ ============ ============
ADC outstanding balances:
Current.................................. $ 76,625 $ 85,914 $ 98,701 $ 122,989 $ 129,450
Delinquencies:
30 to 59 days.......................... 5,187 6,219 8,212 5,529 6,603
60 to 89 days.......................... 4,076 5,073 8,113 4,012 4,633
90 to 119 days......................... 3,677 5,075 6,764 4,245 3,959
120 to 149 days........................ 3,788 5,281 4,487 3,431 2,699
150 days and over...................... 3,145 5,198 3,121 -- --
------------ ------------ ------------ ------------ ------------
Total delinquencies................. 19,873 26,846 30,697 17,217 17,894
------------ ------------ ------------ ------------ ------------
Total....................................... $ 96,498 $ 112,760 $ 129,398 $ 140,206 $ 147,344
============ ============ ============ ============ ============
As a percentage of outstanding
balances:
30 to 59 days............................ 5.38% 5.52% 6.35% 3.94% 4.48%
60 to 89 days............................ 4.22 4.50 6.27 2.86 3.14
90 to 119 days........................... 3.81 4.50 5.23 3.03 2.69
120 to 149 days.......................... 3.93 4.68 3.47 2.45 1.83
150 days and over........................ 3.26 4.61 2.41 -- --
------------ ------------ ------------ ------------ ------------
Total....................................... 20.60% 23.81% 23.73% 12.28% 12.14%
============ ============ ============ ============ ============
(continued)
</TABLE>
47
<PAGE>
(continued)
<TABLE>
<CAPTION>
QUARTERS ENDED
--------------------------------------------------------------------
DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31, DECEMBER 31,
1999 1999 1999 1999 1998
------------ ------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Other credit card loans outstanding balances:
Current.................................. $ 15,398 $ 26,276 $ 28,959 $ 30,273 $ 29,405
Delinquencies:
30 to 59 days.......................... 1,563 1,834 1,163 1,208 1,196
60 to 89 days.......................... 745 860 567 708 669
90 to 119 days......................... 560 568 515 466 538
120 to 149 days........................ -- -- 31 28 4
150 days and over...................... -- 2 5 -- --
------------ ------------ ------------ ------------ ------------
Total delinquencies................. 2,868 3,264 2,281 2,410 2,407
------------ ------------ ------------ ------------ ------------
Total....................................... $ 18,266 $ 29,540 $ 31,240 $ 32,683 $ 31,812
============ ============ ============ ============ ============
As a percentage of outstanding
balances:
30 to 59 days............................ 8.56% 6.21% 3.72% 3.70% 3.76%
60 to 89 days............................ 4.08 2.91 1.81 2.17 2.10
90 to 119 days........................... 3.06 1.92 1.65 1.43 1.69
120 to 149 days.......................... -- -- 0.10 0.08 0.01
150 days and over........................ -- 0.01 0.01 -- --
------------ ------------ ------------ ------------ ------------
Total....................................... 15.70% 11.05% 7.29% 7.38% 7.56%
============ ============ ============ ============ ============
</TABLE>
At April 1, 1999, collection services for the ADC credit card portfolio
were transferred from ADC to the Bank in accordance with the settlement
agreement between the Bank and ADC. As a result of a number of factors,
including conforming the contractual charge-off policy for the ADC portfolio to
the Bank's charge-off policy, which increased the charge-off period from 150 to
180 days, the rise in delinquencies expected upon the cessation of originations
under the program in February 1999 and transitional difficulties associated with
the transfer of the servicing of accounts from ADC to the Bank, delinquencies in
the ADC credit card portfolio increased from the 12.3% level at March 31, 1999
to 23.7% at June 30, 1999. Subsequently, the delinquencies in the ADC portfolio
have declined to 20.60% at December 31, 1999.
The available credit on credit cards outstanding at December 31, 1999 was
$17.3 million, $23.6 million and $3.1 million for MMG, ADC and other card
programs, respectively.
48
<PAGE>
The following table presents the MMG and ADC credit card portfolios by
geographic location at December 31, 1999:
<TABLE>
<CAPTION>
PERCENT OF
AMOUNT TOTAL
---------------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
State:
Florida............................................. $ 26,608 13.83%
Texas............................................... 15,190 7.90
California.......................................... 15,118 7.86
Alabama............................................. 10,715 5.57
North Carolina...................................... 10,494 5.45
Georgia............................................. 8,427 4.38
New York............................................ 7,407 3.85
South Carolina...................................... 6,829 3.55
Ohio................................................ 6,672 3.47
Mississippi......................................... 6,291 3.27
Michigan............................................ 6,109 3.18
Pennsylvania........................................ 5,771 3.00
Tennessee........................................... 5,600 2.91
Louisiana........................................... 5,179 2.69
Indiana............................................. 4,311 2.24
Arkansas............................................ 3,969 2.06
Other states (states with less than 2%)............. 47,687 24.79
---------------- ----------------
Total.................................................. $ 192,377 100.00%
================ ================
</TABLE>
NONACCRUING LOANS
The Bank places a loan, other than a credit card loan, on nonaccrual status
whenever the payment of interest is 90 or more days delinquent, or earlier if
management determines that it is warranted. Loans on nonaccrual status are
resolved by the borrower bringing the loan current, by the Bank and the borrower
agreeing to modify the terms of the loan or by foreclosure of the collateral
securing the loan.
The following table presents net NPLs at the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------- ------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Single family (1 to 4 units).............. $ 4,455 $ 8,958 $ 5,169 $ 13,978 $ 13,897
Multifamily:
5 to 36 units........................ 1,733 3,568 4,753 18,071 14,312
37 units and over.................... -- 562 2,090 2,671 3,190
------------- ------------- ------------- ------------- -------------
Total multifamily................. 1,733 4,130 6,843 20,742 17,502
Commercial & industrial................... 641 1,127 1,062 1,405 20,511
Other loans............................... 116 157 -- -- --
------------- ------------- ------------- ------------- -------------
Total.................................. $ 6,945 $ 14,372 $ 13,074 $ 36,125 $ 51,910
============= ============= ============= ============= =============
</TABLE>
It is the Bank's policy to reserve all earned but unpaid interest on
mortgage and other loans placed on nonaccrual status. The reduction in income
related to such reserves, net of interest recognized on cured delinquencies, was
$0.4 million, $1.9 million and $3.9 million for 1999, 1998 and 1997,
respectively.
49
<PAGE>
ACCRUING DELINQUENT LOANS
Credit card loans accrue interest up to the date of charge-off. Finance
charges are included in the principal balance of the credit card loan and are
charged to the ALLL when the credit card balance is charged-off.
The following table presents accruing loans delinquent 90 days or greater
at the dates indicated:
DECEMBER 31,
-----------------------------
1999 1998
------------- -------------
(DOLLARS IN THOUSANDS)
90 to 119 days......................... $ 7,596 $ 17,969
120 to 149 days........................ 7,213 17,363
150 days and over...................... 5,706 4,460
------------- -------------
Total............................... $ 20,515 $ 39,792
============= =============
RESTRUCTURED LOANS
The Bank will consider modifying the terms of a mortgage loan when the
borrower is experiencing financial difficulty and the Bank determines that the
loan, as modified, is likely to result in a greater ultimate recovery to the
Bank than taking title to the property.
According to SFAS No. 15, "Accounting by Debtors and Creditors for Troubled
Debt Restructuring," a troubled debt restructuring ("TDR") occurs when a
creditor, for economic or legal reasons related to a debtor's difficulties,
grants a concession to the debtor that it would not otherwise consider.
Generally, Fidelity restructures loans by temporarily or permanently reducing
interest rates, allowing interest only payments, reducing the loan balance,
extending property tax repayment plans, extending maturity dates or recasting
principal and interest payments. However, debt restructuring is not necessarily
a TDR even if the borrower is experiencing some difficulties, as long as the
restructuring terms are consistent with current market rates and risk. The
adoption of SFAS No. 114, "Accounting by Creditors for Impairment of a Loan," as
amended by SFAS No. 118, "Accounting by Creditors for Impairment of a
Loan--Income Recognition and Disclosures," requires that TDRs be measured for
impairment in the same manner as any impaired loan. A loan is considered
impaired when, based on current information and events, it is probable that the
Bank will be unable to collect all amounts due (contractual interest and
principal) according to the contractual terms of the loan agreement.
The following table presents TDRs by property type at the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------- ------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Property type:
Single family (1 to 4 units)............... $ 1,044 $ 2,728 $ 3,862 $ 5,438 $ 3,759
Multifamily:
5 to 36 units........................... 15,319 15,694 14,972 11,647 15,189
37 units and over....................... 9,543 8,156 6,485 5,805 9,109
------------- ------------- ------------- ------------- -------------
Total multifamily..................... 24,862 23,850 21,457 17,452 24,298
Commercial and industrial.................. 4,945 21,440 18,674 22,306 3,688
Land....................................... -- -- -- -- 946
------------- ------------- ------------- ------------- -------------
Total TDRs............................ $ 30,851 $ 48,018 $ 43,993 $ 45,196 $ 32,691
============= ============= ============= ============= =============
</TABLE>
50
<PAGE>
ACCELERATED ASSET RESOLUTION PLAN
In the fourth quarter of 1995, the Bank adopted the Accelerated Asset
Resolution Plan (the "Plan"), which was designed to aggressively dispose of,
resolve or otherwise manage a pool of primarily multifamily loans and REO that
at that time were considered by the Bank to have higher risk of future
nonperformance or impairment relative to the remainder of the Bank's multifamily
loan portfolio.
The Plan was terminated as of June 30, 1998, based on the minimal remaining
assets and the determination that the resolution of these assets would be
conducted in a similar manner as the Bank's regular portfolio. As of June 30,
1998, the remaining 30 assets with a book balance, net of SVA and writedowns, of
$9.4 million, comprised of accruing and nonaccruing multifamily real estate
loans totaling approximately $4.8 million and REO properties totaling
approximately $4.6 million. The $1.6 million of unallocated ALLL remaining as of
June 30, 1998 from the original $50.8 million reserves established for the Plan
was included in the Bank's ALLL at June 30, 1998.
CLASSIFIED ASSETS
The following table summarizes classified assets net of SVAs and writedowns
at the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------- ------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Performing classified loans:
Single family (1 to 4 units)........... $ 6,812 $ 6,164 $ 7,792 $ 10,585 $ 12,665
Multifamily:
5 to 36 units........................ 27,360 39,570 63,777 60,785 85,581
Over 37 units........................ 9,979 17,027 22,704 10,375 39,301
------------- ------------- ------------- ------------- -------------
Total multifamily................. 37,339 56,597 86,481 71,160 124,882
Commercial and industrial.............. 7,046 5,802 10,412 29,503 10,099
Credit card and other loans............ 20,677 39,792 -- -- --
------------- ------------- ------------- ------------- -------------
Total performing classified loans.... 71,874 108,355 104,685 111,248 147,646
------------- ------------- ------------- ------------- -------------
NPAs:
NPLs................................... 6,945 14,372 13,074 36,125 51,910
REO.................................... 2,422 8,397 12,293 24,663 19,521
Other repossessed assets............... 29 535 -- -- --
------------- ------------- ------------- ------------- -------------
Total NPAs........................... 9,396 23,304 25,367 60,788 71,431
------------- ------------- ------------- ------------- -------------
Other classified assets................... 840 1,426 23,450 2,060 --
------------- ------------- ------------- ------------- -------------
Total classified assets................... $ 82,110 $ 133,085 $ 153,502 $ 174,096 $ 219,077
============= ============= ============= ============= =============
Classified asset ratios:
NPLs to total assets................... 0.26% 0.39% 0.31% 1.08% 1.57%
NPLs to total loans.................... 0.32% 0.54% 0.46% 1.34% 1.77%
NPAs to total assets................... 0.35% 0.63% 0.61% 1.83% 2.16%
TDRs to total assets................... 1.15% 1.29% 1.06% 1.36% 0.99%
NPAs and TDRs to total assets.......... 1.50% 1.92% 1.66% 3.18% 3.16%
Classified assets to total assets...... 3.06% 3.59% 3.68% 5.23% 6.64%
REO to NPAs............................ 25.78% 36.03% 48.46% 40.57% 27.33%
NPLs to NPAs........................... 73.91% 61.67% 51.54% 59.43% 72.67%
</TABLE>
Total classified assets decreased $51.0 million or 38.3% from December 31,
1998, to $82.1 million at December 31, 1999. This decrease was due to a $31.3
million decrease in classified mortgage loans and a $19.3 million decrease in
classified credit card loans. The decrease in classified mortgage loans reflects
the improving performance of the underlying income properties and increases in
property values in Southern California. The decrease in classified credit card
loans reflects the decrease in outstanding credit card balances.
51
<PAGE>
REO
The following table presents REO by property type and information about the
change in the book value and the number of properties owned and foreclosed for
the periods indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------- ------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Single family (1 to 4 units)............... $ 1,307 $ 3,734 $ 3,702 $ 6,595 $ 5,550
Multifamily:
5 to 36 units.......................... 414 1,735 5,318 13,574 8,421
37 units and over...................... -- 1,844 3,149 1,844 --
------------- ------------- ------------- ------------- -------------
Total multifamily...................... 414 3,579 8,467 15,418 8,421
Commercial and industrial.................. 801 1,584 624 3,950 7,850
Valuation allowances....................... (100) (500) (500) (1,300) (2,300)
------------- ------------- ------------- ------------- -------------
Total net REO.......................... $ 2,422 $ 8,397 $ 12,293 $ 24,663 $ 19,521
============= ============= ============= ============= =============
Properties foreclosed during the period:
Number................................. 67 62 88 131 109
Gross book value....................... $ 14,495 $ 27,774 $ 75,385 $ 77,585 $ 92,661
Average book value..................... $ 216 $ 231 $ 294 $ 343 $ 343
</TABLE>
ALLOWANCE FOR ESTIMATED LOAN AND REO LOSSES
The following table summarizes the activity in the allowance for estimated
loan and REO losses for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------- ------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period............. $ 109,198 $ 55,993 $ 59,589 $ 92,927 $ 69,520
------------- ------------- ------------- ------------- -------------
Charge-offs............................. (131,568) (25,624) (44,000) (55,471) (52,636)
Recoveries.............................. 5,100 5,085 9,118 3,304 2,953
------------- ------------- ------------- ------------- -------------
Net charge-offs....................... (126,468) (20,539) (34,882) (52,167) (49,683)
Provision:
Estimated loan losses................. 78,800 73,032 13,004 15,610 69,724
REO................................... 185 251 1,060 3,219 3,366
Net change in cash reserves (2)......... 1,893 461 4,332 -- --
Allowances related to acquisition (1)... -- -- 12,890 -- --
------------- ------------- ------------- ------------- -------------
Balance at end of period................... $ 63,608 $ 109,198 $ 55,993 $ 59,589 $ 92,927
============= ============= ============= ============= =============
Ratio of net charge-offs during the period
to average loans outstanding............ 5.0% 0.8% 1.2% 1.8% 1.6%
</TABLE>
- ----------------
(1) Represents the estimated loan losses included in the acquisition of Hancock.
(2) Net change in cash reserves includes fundings, repurchases and transfers
from credit card marketers.
52
<PAGE>
The following table presents loan and REO charge-offs and recoveries for
the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------- ------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Charge-offs:
Single family (1 to 4 units)............ $ 1,245 $ 2,633 $ 9,649 $ 10,587 $ 7,868
Multifamily loans:
5 to 36 units......................... 1,834 8,384 28,664 33,083 33,948
37 units and over..................... 275 3,515 3,548 6,043 8,179
------------- ------------- ------------- ------------- -------------
Total multifamily.................. 2,109 11,899 32,212 39,126 42,127
Commercial and industrial............... 1,407 529 2,139 5,758 2,641
Credit card loans....................... 123,325 9,502 -- -- --
Other loans............................. 3,482 1,061 -- -- --
------------- ------------- ------------- ------------- -------------
Total charge-offs.......................... $ 131,568 $ 25,624 $ 44,000 $ 55,471 $ 52,636
============= ============= ============= ============= =============
Recoveries:
Single family (1 to 4 units)............ $ 1,050 $ 2,143 $ 3,485 $ 948 $ 119
Multifamily loans:
5 to 36 units......................... 564 2,286 4,611 1,144 1,781
37 units and over..................... 550 511 247 491 829
------------- ------------- ------------- ------------- -------------
Total multifamily.................. 1,114 2,797 4,858 1,635 2,610
Commercial and industrial............... 607 63 775 721 224
Credit card loans....................... 2,129 -- -- -- --
Other loans............................. 200 82 -- -- --
------------- ------------- ------------- ------------- -------------
Total recoveries........................... $ 5,100 $ 5,085 $ 9,118 $ 3,304 $ 2,953
============= ============= ============= ============= =============
</TABLE>
In addition to reserves established by the Bank, cash reserves have been
provided by credit card affinity marketers under the credit enhancement programs
which are utilized to purchase accounts from the Bank after the accounts reach a
certain delinquent status. At December 31, 1999 and 1998, cash reserves were
$2.7 million and $1.9 million, respectively, and were recorded as deposits on
the Company's statements of financial condition. Accounts purchased from cash
reserves during 1999 and 1998 totaled $2.7 million and $25.7 million,
respectively, and are not included in the above table.
53
<PAGE>
The following table sets forth the allowance for estimated loan and REO
losses at the dates indicated:
<TABLE>
<CAPTION>
QUARTERS ENDED
--------------------------------------------------------------------
DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31, DECEMBER 31,
1999 1999 1999 1999 1998
------------ ------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Loans:
ALLL ...................................... $ 56,376 $ 65,550 $ 75,414 $ 70,606 $ 98,229
SVA........................................ 3,902 5,040 5,681 7,292 7,942
------------ ------------ ------------ ------------ ------------
Total ALLL and SVA....................... 60,278 70,590 81,095 77,898 106,171
Cash reserves.............................. 2,672 3,357 2,467 1,915 1,888
------------ ------------ ------------ ------------ ------------
Total allowances and cash reserves....... 62,950 73,947 83,562 79,813 108,059
REO valuation allowances...................... 658 620 1,068 998 1,139
------------ ------------ ------------ ------------ ------------
Total allowances and cash reserves............ $ 63,608 $ 74,567 $ 84,630 $ 80,811 $ 109,198
============ ============ ============ ============ ============
Selected ratios:
Total allowances to net loans and REO...... 2.85% 3.18% 3.33% 3.03% 3.86%
Total ALLL and cash reserves to:
Net loans................................ 2.65% 2.95% 3.08% 2.73% 3.62%
Net NPLs................................. 850.35% 969.43% 1214.61% 552.04% 696.61%
Net loans and REO........................ 2.65% 2.95% 3.09% 2.74% 3.63%
Net NPAs................................. 629.57% 536.39% 584.41% 333.61% 431.75%
Total assets............................. 2.20% 2.33% 2.38% 2.06% 2.71%
</TABLE>
Credit losses are inherent in the business of originating and retaining
loans. The Company maintains an allowance for credit losses to absorb losses
inherent in the loan portfolio. These allowances consist of SVAs and an ALLL
which are based on ongoing, quarterly assessments of the probable estimated
losses inherent in the loan portfolio. In addition, the Company's allowances
incorporate the results of measuring impaired loans as provided in:
o SFAS No. 5, "Accounting for Contingencies"
o SFAS No. 114, "Accounting by Creditors for Impairment of a Loan,"
and
o SFAS No. 118, "Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosures."
These accounting standards prescribe the measurement methods, income
recognition and disclosures concerning impaired loans.
An SVA is established where management has identified significant
conditions or circumstances related to a specific loan that management believes
indicate the probability that a loss has been incurred.
The ALLL is established to provide for credit losses inherent in the loan
portfolio other than those provided for in SVAs. The ALLL is computed utilizing
several models and methodologies which are based upon a number of factors,
including historical delinquency and loss experience, the level of nonperforming
and internally classified loans, the composition of the loan portfolio,
estimated remaining lives of the various types of loans within the portfolio,
prevailing and forecasted economic conditions and management's judgment. For
small-dollar-value homogeneous loans (such as consumer installment loans,
residential mortgages and credit card loans), the Company utilizes computations
based on various factors, including past loss experience, recent economic events
and current conditions and portfolio delinquency rates. For loans or groups of
loans for which the Company has little or no loss experience of its own, the
Company utilizes the loss experience for similar types of loans of other
enterprises.
54
<PAGE>
The Company's methodology for assessing the appropriateness of the ALLL
consists of:
o a calculated component, and
o a judgmental component
The calculated component of the ALLL at December 31, 1999, was determined
as follows:
o SINGLE FAMILY MORTGAGE LOANS (1-4 UNITS): Delinquency migration
models were utilized which apply delinquency and loss factors to
the outstanding portfolio segregated by delinquency status. The
delinquency and loss factors are based on delinquency migration
results of the Company's single family loan portfolio for the most
recent twelve months, or, in the case of nonconforming mortgage
loans, are based on the delinquency and loss experience for
similar types of loans of other enterprises. Estimated charge-offs
in 2000 are expected to be $1.0 million.
o MULTIFAMILY MORTGAGE LOANS AND COMMERCIAL AND INDUSTRIAL REAL
ESTATE LOANS GRADED PASS OR SPECIAL MENTION: Loss factors were
applied to outstanding loan balances based on the internal risk
grade of those loans or pools of loans. These loss factors are
based on the Company's historical loss experience over the last
two years derived from the classification migration model.
Estimated charge-offs in 2000 are expected to be $3.2 million.
o MULTIFAMILY AND COMMERCIAL & INDUSTRIAL REAL ESTATE LOANS GRADED
SUBSTANDARD: An estimated allowance was computed for each loan
based on the estimated value of the underlying collateral of each
loan as compared to its carrying value. Estimated charge-offs in
2000 are expected to be $1.1 million.
o CREDIT CARD LOANS ORIGINATED UNDER THE ADC AND MMG AGREEMENTS: The
Company utilized a delinquency migration model that applies
delinquency migration factors to the outstanding portfolio
segregated by delinquency status. The delinquency migration model
assumes the continuation of historical delinquency patterns from
current accounts to charge-off. Estimated charge-offs in 2000 are
expected to be $49.3 million.
o CREDIT CARD LOANS ORIGINATED UNDER OTHER PROGRAMS: Delinquency
migration models based on the related credit card portfolios'
specific experience were utilized. Estimated charge-offs in 2000
are expected to be $2.5 million and are expected to be covered by
the cash deposits and guarantees of credit enhanced credit card
program marketers.
o ALL OTHER LOANS: Loss factors were applied to the outstanding loan
balances. These loss factors were based on the Company's
historical experience or the loss experience for similar types of
loans of other enterprises. Estimated charge-offs in 2000 are
expected to be $1.1 million.
Loans with SVAs are excluded from the computation of ALLL.
The judgmental component is based upon management's evaluation of various
conditions, the effects of which are not directly measured in determining SVA or
the calculated component. The evaluation of the inherent loss regarding these
conditions involves a higher degree of uncertainty because they are not
identified with specific problem credits or portfolio segments. The conditions
evaluated in connection with the judgmental component include the following
conditions:
o level of inherent uncertainty in the precision of the calculated
component,
o general economic and business conditions affecting key lending
areas,
55
<PAGE>
o credit quality trends, including trends in nonperforming loans
expected to result from existing conditions,
o recent trends in collateral values,
o loan volumes and concentrations,
o seasoning of the loan portfolios,
o specific industry conditions within portfolio segments,
o recent loss experience in particular segments of the portfolio,
o duration of the current business cycle, and
o quality of loan review and credit oversight systems
o experience of lending personnel
Executive management reviews these conditions quarterly. If any of these
conditions is evidenced by a specifically identifiable problem credit as of the
evaluation date, management's estimate of the effect of this condition may be
reflected as a specific allowance applicable to this credit. Where any of these
conditions are not evidenced by a specifically identifiable problem credit as of
the evaluation date, management's evaluation of the probable loss concerning
this condition is reflected in the judgmental component.
The credit enhanced credit card programs require the marketing agent, as
part of their contractual obligation to reimburse Fidelity for credit losses, to
maintain cash deposits with Fidelity. These cash deposits are deducted from the
computed amount of estimated future credit losses in determining the required
levels of ALLL and are considered part of the reserves available to cover future
credit losses. In addition, the Bank does not provide for estimated credit
losses in excess of cash deposits for the credit enhanced credit card programs
if a determination is made that the Bank can rely on the marketer for payment of
future credit losses.
The Company's allowance for credit losses is based upon estimates of
probable losses inherent in the loan portfolio. The amount of losses actually
incurred can vary significantly from the estimated amounts. The Company's
methodology includes several features that are intended to reduce the difference
between estimated and actual losses. The migration models that are used are
designed to be self-correcting by taking into account the Company's recent
delinquency and loss experience. Pooled loan loss factors are adjusted quarterly
based upon the level of net charge-offs expected by management in the next
twelve months. Furthermore, the Company's methodology permits adjustments to any
loss factor used in the computation of the formula allowance in the event that,
in management's judgment, significant factors that affect the collectibility of
the portfolio as of the evaluation date are not reflected in the loss factors.
By assessing the probable estimated losses inherent in the loan portfolio on a
quarterly basis, the Company is able to adjust specific and inherent loss
estimates based upon any more recent information that has become available.
The Company believes its policies and procedures for establishing the
allowance for credit losses and for providing provisions for estimated loan
losses are in accordance with generally accepted accounting principles ("GAAP"),
including SFAS No. 5, SFAS No. 114, SFAS No. 118 and regulatory standards
established by the OTS.
The allowance for loan losses does not represent the amount of losses that
could be incurred under adverse conditions that management does not consider to
be the most likely to arise. In addition, management's classification of assets
and evaluation of the adequacy of the allowance for loan losses is an ongoing
process. Consequently, there can be no assurance that material additions to the
Bank's allowance for loan losses will not be required in the future, thereby
adversely affecting earnings and the Bank's ability to maintain or build
capital.
56
<PAGE>
REGULATORY CAPITAL COMPLIANCE
The OTS capital regulations, as required by FIRREA include three separate
minimum capital requirements for the savings institution industry--a "tangible
capital requirement," a "leverage limit" and a "risk-based capital requirement."
These capital standards must be no less stringent than the capital standards
applicable to national banks.
The Bank's actual and required capital are as follows at the dates
indicated:
<TABLE>
<CAPTION>
MINIMUM TO BE WELL
CAPITALIZED UNDER
MINIMUM PROMPT CORRECTIVE
ACTUAL CAPITAL REQUIREMENT ACTION PROVISION
---------------------- ------------------------ ------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
----------- --------- ------------- --------- ------------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1999:
Total capital (to risk-weighted
assets)................................. $ 159,952 10.09% $ 126,796 8.00% $ 158,495 10.00%
Core capital (to adjusted tangible
assets)................................. 139,689 5.22 80,306 3.00 133,843 5.00
Tangible capital (to tangible assets)..... 139,689 5.22 40,153 1.50 N/A 5.00
Core capital (to risk-weighted
assets)................................. 139,689 8.81 N/A 95,097 6.00
AS OF DECEMBER 31, 1998:
Total capital (to risk-weighted
assets)................................. $ 188,746 8.95% $ 168,656 8.00% $ 210,820 10.00%
Core capital (to adjusted tangible
assets)................................. 161,506 4.36 111,028 3.00 185,046 5.00
Tangible capital (to tangible assets)..... 161,506 4.36 55,514 1.50 N/A
Core capital (to risk-weighted
assets)................................. 161,506 7.66 N/A 126,492 6.00
</TABLE>
57
<PAGE>
The following table reconciles the Company's stockholders' equity and the
Bank's capital in accordance with GAAP to the Bank's tangible, core and
risk-based capital at the dates indicated:
<TABLE>
<CAPTION>
TANGIBLE CORE RISK-BASED
CAPITAL CAPITAL CAPITAL
------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
AS OF DECEMBER 31, 1999:
Consolidated stockholders' equity................. $ 96,176 $ 96,176 $ 96,176
Adjustments:
Fidelity's Preferred Stock...................... 51,750 51,750 51,750
Bank Plus equity excluding Fidelity............. (1,250) (1,250) (1,250)
------------ ------------ ------------
Fidelity's stockholders' equity................... 146,676 146,676 146,676
Accumulated other comprehensive loss.............. 9,272 9,272 9,272
Adjustments:
Intangible assets............................... (12,352) (12,352) (12,352)
Nonincludable subsidiaries...................... (1) (1) (1)
Excess ALLL..................................... -- -- 20,263
Net deferred tax assets......................... (3,906) (3,906) (3,906)
------------ ------------ ------------
Regulatory capital.................................. $ 139,689 $ 139,689 $ 159,952
============ ============ ============
AS OF DECEMBER 31, 1998:
Consolidated stockholders' equity................. $ 127,388 $ 127,388 $ 127,388
Adjustments:
Fidelity's Preferred Stock...................... 51,750 51,750 51,750
Bank Plus equity excluding Fidelity............. (6,152) (6,152) (6,152)
------------ ------------ ------------
Fidelity's stockholders' equity................... 172,986 172,986 172,986
Accumulated other comprehensive loss.............. 2,795 2,795 2,795
Adjustments:
Intangible assets............................... (14,268) (14,268) (14,268)
Nonincludable subsidiaries...................... (7) (7) (7)
Excess ALLL..................................... -- -- 27,240
------------ ------------ ------------
Regulatory capital.................................. $ 161,506 $ 161,506 $ 188,746
============ ============ ============
</TABLE>
As of December 31, 1999, the Bank was "well capitalized" under the PCA
regulations adopted by the OTS pursuant to FDICIA. As of December 31, 1999, the
most constraining of the capital ratio measurements was risk-based capital to
risk-weighted assets which had an excess of $1.5 million above the minimum level
required to be considered well capitalized. The Bank's capital amounts and
classification are subject to review by federal regulators about components,
risk-weightings and other factors. Due to the expectation of continuing losses
in the credit card operations, or a significant write-down in the carrying value
of the credit card portfolios as a result of the adoption of alternative
strategies, the Bank expects to be adequately capitalized in 2000.
LIQUIDITY
The Bank derives funds from deposits, FHLB advances, securities sold under
agreements to repurchase, and other short-term and long-term borrowings. In
addition, funds are generated from loan payments and payoffs as well as from the
sale of loans and investments.
58
<PAGE>
DEPOSITS
The largest source of funds for the Company is deposits. Customer deposits
are insured by the FDIC to the maximum amount permitted by law up to $100,000
per account. The Company has several types of deposit accounts designed to
attract both short-term and long-term deposits.
At December 31, 1999, the Company had deposits of $2.5 billion. The
following table presents the distribution of deposit accounts at the dates
indicated:
DECEMBER 31,
----------------------------
1999 1998
------------ -------------
(DOLLARS IN THOUSANDS)
Passbook accounts............................. $ 49,973 $ 56,836
Checking accounts............................. 369,071 380,292
Money market savings accounts................. 50,428 56,451
------------ -------------
Total transaction accounts............... 469,472 493,579
CDs........................................... 2,031,774 2,428,952
------------ -------------
Total deposits........................... $ 2,501,246 $ 2,922,531
============ =============
There were no brokered deposits outstanding at December 31, 1999 and 1998.
The following table summarizes CDs by remaining maturity and weighted
average rate at December 31, 1999:
<TABLE>
<CAPTION>
REMAINING TERM TO MATURITY
-----------------------------------------------------------------------------
GREATER
LESS THAN 3 TO 6 6 TO 12 THAN
3 MONTHS MONTHS MONTHS 12 MONTHS TOTAL
------------- -------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CDs:
Less than $100,000.................... $ 409,071 $ 306,464 $ 496,042 $ 210,726 $ 1,422,303
Greater than $100,000................. 189,391 83,955 227,029 109,096 609,471
------------- -------------- ------------- ------------- -------------
Total CDs................................. $ 598,462 $ 390,419 $ 723,071 $ 319,822 $ 2,031,774
============= ============== ============= ============= =============
Weighted average yield:
Less than $100,000.................... 4.58% 4.59% 4.88% 4.72% 4.71%
Greater than $100,000................. 4.92% 4.74% 5.19% 4.91% 4.99%
Total weighted average yield on CDs....... 4.69% 4.62% 4.97% 4.78% 4.79%
</TABLE>
The following table provides information with regards to the Bank's most
recent quarterly experience in the levels of and pricing of CDs for the period
indicated:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE RATE
--------------------------
NET NEW OR NET NEW OR
WITHDRAWALS RENEWED NET CHANGE WITHDRAWALS RENEWED
------------- ------------- ------------ ------------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CDs maturing in quarter ended:
December 31, 1998................. $ 579,887 $ 436,875 $ (143,012) 5.43% 4.30%
March 31, 1999.................... 695,261 532,999 (162,262) 5.15 4.18
June 30, 1999..................... 584,454 452,263 (132,191) 5.08 4.33
September 30, 1999................ 577,716 561,375 (16,341) 4.90 4.79
December 31, 1999................. 482,455 494,889 12,434 4.55 4.96
</TABLE>
59
<PAGE>
The distribution of certificate accounts by date of maturity is an
important indicator of the relative stability of a major source of funds. Longer
term certificate accounts generally provide greater stability as a source of
funds, but currently entail greater interest costs than passbook accounts. The
following tables summarize certificate accounts by maturity, as a percentage of
total deposits and weighted average rate at December 31, 1999:
<TABLE>
<CAPTION>
WEIGHTED
PERCENT OF TOTAL AVERAGE
MATURES IN QUARTER ENDED: AMOUNT DEPOSITS RATE
- ------------------------- ------------- ---------------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
March 31, 2000..................................................... $ 598,462 23.9% 4.69%
June 30, 2000.................................................... 390,419 15.6 4.62
September 30, 2000............................................... 385,910 15.4 4.96
December 31, 2000................................................ 337,161 13.5 4.99
March 31, 2001................................................... 105,794 4.2 4.42
June 30, 2001.................................................... 77,643 3.1 4.57
September 30, 2001............................................... 19,420 0.8 5.66
December 31, 2001 and after...................................... 116,965 4.7 5.11
------------- ------
Total CDs..................................................... $ 2,031,774 81.2% 4.79
============= ======
</TABLE>
BORROWINGS
The following table sets forth certain information as to the Company's FHLB
advances and other borrowings at the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------
1999 1998 1997
------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
FHLB advances:
Fixed rate advances........................................... $ 20,000 $ 585,000 $ 835,000
Floating rate advances........................................ -- -- 174,960
------------- ------------- -------------
Total FHLB advances.......................................... 20,000 585,000 1,009,960
Other borrowings:
Senior Notes.................................................. 51,478 51,478 51,478
------------- ------------- -------------
Total borrowings................................................. $ 71,478 $ 636,478 $ 1,061,438
============= ============= =============
Weighted average interest rate on all borrowings................. 11.05% 6.20% 6.13%
Percent of total borrowings to total liabilities and
stockholders' equity........................................... 2.66% 17.15% 25.46%
</TABLE>
The $20 million in FHLB advances outstanding at December 31, 1999, matured
and was paid-off in February 2000.
UNDRAWN SOURCES
The Company maintains other sources of liquidity to draw upon, which at
December 31, 1999 include (a) available credit faculties with the FHLB of $382.3
million, (b) $284.2 million in unpledged securities available to be placed in
reverse repurchase agreements or sold, (c) available credit facilities at the
Federal Reserve Bank of $100 million and the ability under Federal Regulations
to borrow $125 million through the use of brokered CDs.
60
<PAGE>
CONTINGENT OR POTENTIAL USES OF FUNDS
The Bank had $3.4 million of unfunded loans at December 31, 1999.
Additionally, unused lines of credit related to credit card loans and other
loans totaled $44.0 million and $39.8 million, respectively, at December 31,
1999.
LIQUIDITY
The regulatory required average daily balance of liquid assets is 4% of the
liquidity base, which is based on a quarterly average. The Bank's quarterly
average regulatory liquidity ratio was 12.83%, 18.40% and 22.75% at December 31,
1999, 1998 and 1997, respectively.
HOLDING COMPANY LIQUIDITY
At December, 1999 and 1998, Bank Plus had cash and cash equivalents of $0.6
million and $0.7 million, respectively. Bank Plus has no material potential cash
producing operations or assets other than its investments in Fidelity and
Gateway. Accordingly, Bank Plus is substantially dependent on dividends from
Fidelity and Gateway in order to fund its cash needs, including its payment
obligations on its $51.5 million principal amount of the Senior Notes issued in
exchange for Fidelity's Preferred Stock. The quarterly 1999 senior note interest
payments were funded by preferred stock dividends from Fidelity and cash on hand
at Bank Plus.
The liquidity for the interest payments in 2000 is expected to be provided
by preferred stock dividends from the Bank and currently projected liquidity at
the holding company. The Bank has an understanding with the OTS which permits
the payment of dividends on the Bank's preferred stock so long as the Bank
remains at least adequately capitalized for regulatory purposes. The
understanding with the OTS does not constrain the OTS from restricting future
dividend payments based on safety and soundness considerations or future
examination findings, and no assurance can therefore be given that the OTS will
permit future dividend payments by Fidelity to Bank Plus. The Bank has received
no indication from the OTS that it will object to the continued payment of
preferred dividends.
COMMITMENTS AND CONTINGENCIES
Fidelity enters into agreements to extend credit to customers on an ongoing
basis. Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Most commitments are expected to be
drawn upon and, therefore, the total commitment amounts generally represent
future cash requirements. At December 31, 1999, the Company had $3.4 million in
commitments to fund loans. In addition, the Company has extended lines of credit
in the form of credit cards and other totaling $304.8 million. At December 31,
1999, the unused and available portion of the credit lines extended included
$44.0 million related to credit cards and $39.8 million related to overdraft
reserve lines on checking accounts and other credit lines.
As of December 31, 1999, the Company had certain mortgage loans with a
gross principal balance of $73.5 million, of which $61.4 million had been put
into the form of mortgage pass-through certificates, over various periods of
time, leaving a balance of $12.1 million in loans retained by the Company. These
mortgage pass-through certificates provide a credit enhancement to the investors
in the form of the Company's subordination of its retained percentage interest
to that of the investors. In this regard, the aggregate of $61.4 million are
deemed Senior Mortgage Pass-Through Certificates and the $12.1 million in loans
held by the Company are subordinated to the Senior Mortgage Pass-Through
Certificates in the event of borrower default. Full recovery of the $12.1
million is subject to this contingent liability due to its subordination. In
1993, the Bank repurchased a portion of the mortgage pass-through certificates,
and at December 31, 1999, the balance of the repurchased certificate was $21.6
million and was included in the MBS AFS portfolio and accounted for in
accordance with SFAS No. 115. The other Senior Mortgage Pass-Through
Certificates totaling $39.8 million at December 31, 1999 are owned by other
investor institutions. The contingent liability for credit losses on these
mortgage pass-through certificates was $0.5 million and $0.9 million at December
31, 1999 and 1998, respectively, and is included in other liabilities.
61
<PAGE>
The Company also effected the securitization by FNMA of multifamily
mortgages wherein whole loans were swapped for Triple A rated MBS through FNMA's
Alternative Credit Enhancement Structure ("ACES") program. These MBS were later
sold and the current outstanding balance as of December 31, 1999 of $79.6
million is serviced by the Company, including commitments assumed as a result of
the Hancock acquisition. As part of a credit enhancement to absorb losses
relating to the ACES transaction, the Company has pledged and placed in a trust
account, as of December 31, 1999, $17.4 million, comprised of $13.3 million in
cash and $4.1 million in U.S. Agency securities. The Company shall absorb
losses, if any, which may be incurred on the securitized multifamily loans to
the extent of $13.9 million. FNMA is responsible for any losses in excess of
$13.9 million. The corresponding contingent liability for credit losses was $1.3
million and $2.3 million at December 31, 1999 and 1998, respectively, and is
included in other liabilities.
ASSET/LIABILITY MANAGEMENT AND MARKET RISK
The objective of asset/liability management is to maximize the net income
of the Company while controlling interest rate risk exposure. Banks and savings
institutions are subject to interest rate risk when assets and liabilities
mature or reprice at different times (duration risk), against different indices
(basis risk) or for different terms (yield curve risk). The decision to control
or accept interest rate risk can only be made with an understanding of the
probability of various scenarios occurring.
62
<PAGE>
The following table sets out the maturity and rate sensitivity of the
interest-earning assets and interest-bearing liabilities as of December 31,
1999. "Gap," as reflected in the table, represents the estimated difference
between the amount of interest-earning assets and interest-bearing liabilities
repricing during future periods as adjusted for interest-rate swaps and other
financial instruments as applicable, and based on certain assumptions, including
those stated in the notes to the table.
<TABLE>
MATURITY AND RATE SENSITIVITY ANALYSIS
<CAPTION>
AS OF DECEMBER 31, 1999
MATURITY OR REPRICING
----------------------------------------------------------------------------
WITHIN 3 4-12 1-5 6-10 OVER 10
MONTHS MONTHS YEARS YEARS YEARS TOTAL
----------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Cash and cash equivalents.............. $ 15,138 $ -- $ -- $ -- $ -- $ 15,138
FHLB stock (1) ....................... 31,142 -- -- -- -- 31,142
MBS (1)................................ 83,709 736 -- -- 235,788 320,233
Loans receivable:
ARMs (2)............................. 1,587,557 351,271 56,792 7,860 1,169 2,004,649
Fixed rate loans..................... 27,688 72,728 3,376 10,847 108,819 223,458
----------- ----------- ----------- ----------- ----------- -----------
Total gross loans receivable....... 1,615,245 423,999 60,168 18,707 109,988 2,228,107
----------- ----------- ----------- ----------- ----------- -----------
Total interest-earning assets............ 1,745,234 424,735 60,168 18,707 345,776 $2,594,620
----------- ----------- ----------- ----------- ----------- ===========
Interest-bearing liabilities:
Deposits:
Checking and savings accounts (3).... 419,044 -- -- -- -- $ 419,044
Money market accounts (3)............ 50,428 -- -- -- -- 50,428
Fixed maturity deposits:
Retail customers................... 598,462 1,113,491 315,156 4,406 259 2,031,774
Wholesale customers................ -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Total deposits................... 1,067,934 1,113,491 315,156 4,406 259 2,501,246
----------- ----------- ----------- ----------- ----------- -----------
Borrowings:
FHLB advances ....................... 20,000 -- -- -- -- 20,000
Other................................ -- -- -- 51,478 -- 51,478
----------- ----------- ----------- ----------- ----------- -----------
Total borrowings................... 20,000 -- -- 51,478 -- 71,478
----------- ----------- ----------- ----------- ----------- -----------
Total interest-bearing liabilities....... 1,087,934 1,113,491 315,156 55,884 259 $2,572,724
----------- ----------- ----------- ----------- ----------- ===========
Repricing Gap............................ $ 657,300 $ (688,756) $ (254,988) $ (37,177) $ 345,517
=========== =========== =========== =========== ===========
Gap to total assets...................... 24.49% (25.67)% (9.50)% (1.39)% 12.88%
Cumulative Gap to Total Assets........... 24.49% (1.18)% (10.68)% (12.07)% 0.81%
</TABLE>
- ----------------
(1) Repricings shown are based on the contractual maturity or repricing
frequency of the instrument.
(2) Adjustable rate mortgages ("ARMs") are primarily in the shorter categories
as they are subject to interest rate adjustments.
(3) These liabilities are subject to daily adjustments and are therefore
included in the "Within 3 Months" category.
The Company manages interest rate risk by, among other things, maintaining
a portfolio consisting primarily of ARM loans. ARM loans comprised 94% of the
total mortgage loan portfolio at December 31, 1999. The percentage of monthly
adjustable ARMs to total mortgage loans was 69% at December 31, 1999. Interest
sensitive assets provide the Company with a degree of long-term protection from
rising interest rates. At December 31, 1999, approximately 91% of Fidelity's
total mortgage loan portfolio consisted of loans which mature or reprice within
one year.
63
<PAGE>
Over 90% of the Bank's ARM loans are indexed to COFI and do not reprice
until some time after the industry liabilities comprising COFI reprice. In the
Company's case this lag is approximately four months. Historically, because the
repricing of the Company's liabilities were generally consistent with the
repricing of COFI, the repricing of the Company's loans occurred after the
repricing of its liabilities. Thus, in a rising interest rate environment, the
Company's net interest income would be adversely affected until the majority of
its interest earning assets fully repriced. During 1999, as a result of the
Bank's deposit repricing and conversion program and the reduction in the level
of wholesale borrowings, the repricing of the Bank's liabilities have lagged the
repricing of COFI. As a result, the Bank's net yield on interest earning assets
increased in 1999 during a period of increasing interest rates. It is
anticipated that the repricing of the Bank's liabilities will continue to lag
the repricing of COFI primarily because the Bank has paid off all of its
wholesale borrowings. This may be negatively impacted by the Bank's future need
to utilize wholesale borrowings to fund the anticipated sale of deposits during
2000. Also, because of this lag in repricing of the Bank's liabilities to the
repricing of COFI, the Bank's net interest income may not be as positively
affected by falling interest rates as other financial institutions.
Analysis of the Gap provides only a static view of the Company's interest
rate sensitivity at a specific point in time. The actual impact of interest rate
movements on the Company's net interest income may differ from that implied by
any Gap measurement. The actual impact on net interest income may depend on the
direction and magnitude of the interest rate movement, as well as competitive
and market pressures.
The Company may employ interest rate swaps, caps and floors in the
management of interest rate risk. An interest rate swap agreement is a financial
transaction where two counterparties agree to exchange different streams of
payments over time. An interest rate swap involves no exchange of principal
either at inception or upon maturity; rather, it involves the periodic exchange
of interest payments arising from an underlying notional principal amount.
Interest rate caps and floors generally involve the payment of a one-time
premium to a counterparty who, if interest rates rise or fall, above or below a
predetermined level, will make payments to the Company at an agreed upon rate
for the term of the agreement until such time as interest rates fall below or
rise above the cap or floor level. By their nature all such instruments involve
risk, and the maximum potential loss may exceed the value at which such
instruments are carried. As is customary for these types of instruments, the
Company usually does not require collateral or other security from other parties
to these instruments. The Company manages its credit exposure to counterparties
through credit approvals, credit limits and other monitoring procedures. The
Company's Credit Policy Committee makes recommendations regarding counterparties
and credit limits which are subject to approval by the Board of Directors. There
were no derivative financial instruments outstanding at December 31, 1999 or
1998.
MARKET RISK
The Bank's Asset Liability Committee ("ALCO"), which includes senior
management representatives, monitors and considers methods of managing the rate
and sensitivity repricing characteristics of the balance sheet components
consistent with maintaining acceptable levels of changes in net portfolio value
("NPV") and net interest income. A primary purpose of the Company's
asset/liability management is to manage interest rate risk to effectively invest
the Company's capital and to preserve the value created by its core business
operations. As such, certain management monitoring processes are designed to
minimize the impact of sudden and sustained changes in interest rates on NPV and
net interest income.
The Company's exposure to interest rate risk is reviewed on at least a
quarterly basis by the Board of Directors and the ALCO. Interest rate risk
exposure is measured using interest rate sensitivity analysis to determine the
Company's change in NPV in the event of hypothetical changes in interest rates
and interest rate sensitivity gap analysis is used to determine the repricing
characteristics of the Bank's assets and liabilities.
64
<PAGE>
Interest rate sensitivity analysis is used to measure the Company's
interest rate risk by computing estimated changes in NPV of its cash flows from
assets, liabilities and off-balance sheet items in the event of a range of
assumed changes in market interest rates. NPV is equal to the estimated market
value of assets minus the market value of liabilities, with adjustments made for
off-balance sheet items. This analysis assesses the risk of loss in market risk
sensitive instruments in the event of a sudden and sustained one hundred to
three hundred basis points increase or decrease in the market interest rates.
NPV is calculated by the Company pursuant to the guidelines established by the
OTS. The calculation is based on the net present value of estimated discounted
cash flows utilizing market prepayment assumptions and market rates of interest
provided by independent broker quotations and other public sources as of
December 31, 1999, with adjustments made to reflect the shift in the treasury
yield curve as appropriate. Computation of prospective effects of hypothetical
interest rate changes are based on numerous assumptions, including relative
levels of market interest rates, loan prepayments and deposits decay, and should
not be relied upon as indicative of actual results. Further, the computations do
not contemplate any actions the ALCO could undertake in response to changes in
interest rates.
The following table presents the Company's projected change in NPV for the
various rate shock levels at the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
---------------------------- -----------------------------
PERCENTAGE CHANGE IN PERCENTAGE CHANGE IN
CHANGE IN INTEREST RATES NET INTEREST NET PORTFOLIO NET INTEREST NET PORTFOLIO
(IN BASIS POINTS) INCOME (1) VALUE (2) INCOME (1) VALUE (2)
------------------------ ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
+300 (2)% (25)% 1% --%
+200 (1) (16) 3 4
+100 -- (7) 4 5
Base Case -- -- -- --
-100 (1) 5 (6) (7)
-200 (4) 6 (13) (15)
-300 (10) 6 (19) (19)
</TABLE>
- ----------------
(1) The percentage change in this column represents net interest income for 12
months in a stable interest rate environment versus the net interest income
in the various rate scenarios.
(2) The percentage change in this column represents the NPV of the Bank in a
stable interest rate environment versus the NPV in the various rate
scenarios.
65
<PAGE>
The following table shows the Company's financial instruments that are
sensitive to change in interest rates, categorized by expected maturity, and the
instruments' fair values at December 31, 1999. This data differs from that in
the Gap table as it does not incorporate the repricing characteristics of assets
and liabilities. Rather, it only reflects contractual maturities adjusted for
anticipated prepayments. Market risk sensitive instruments are generally defined
as on and off balance sheet derivatives and other financial instruments.
<TABLE>
<CAPTION>
DECEMBER 31,
EXPECTED MATURITY DATE AT DECEMBER 31, 1998 (1) 1998
----------------------------------------------------------------------------------------------- ----------
TOTAL FAIR FAIR
2000 2001 2002 2003 2004 THEREAFTER BALANCE VALUE (2) VALUE (2)
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-sensitive
assets:
Investment securities. $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ 29,896
MBS AFS............... 83,652 37,979 30,663 25,073 20,960 121,906 320,233 320,233 465,010
Average coupon rate. 6.21% 7.04% 7.60% 7.40% 7.49% 7.37% 7.06%
Loans receivable...... 71,953 69,123 178,225 74,325 109,888 1,665,867 2,169,381 2,109,540 2,707,333
Average interest
rate............... 6.46% 9.22% 9.47% 6.79% 7.27% 7.23% 7.44%
Mortgage servicing
assets............... -- -- -- -- -- 1,186 1,186 5,733 5,368
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Total interest-
sensitive assets....... $ 155,605 $ 107,102 $ 208,888 $ 99,398 $ 130,848 $1,788,959 $2,490,800 $2,435,506 $3,207,607
=========== =========== =========== =========== =========== =========== =========== =========== ===========
Interest-sensitive
liabilities:
Deposits:
Transaction
accounts........... $ 326,846 $ 28,691 $ 28,691 $ 28,691 $ 28,691 $ 28,004 $ 469,614 $ 469,614 $ 493,579
Average interest
rate............. 1.78% 1.31% 1.39% 1.48% 1.49% 1.46% 1.67%
CDs................. 1,710,341 223,083 89,623 4,232 4,005 347 2,031,631 2,024,030 2,445,581
Average interest
rate............. 4.79% 4.57% 5.17% 5.54% 5.34% 5.38% 4.79%
Borrowings............ 20,000 -- -- -- -- 51,478 71,478 78,467 663,520
Average interest
rate............... 8.61% --% --% --% 5.60% 12.00% 11.05%
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Total interest-sensitive
liabilities........... $2,057,187 $ 251,774 $ 118,314 $ 32,923 $ 32,696 $ 79,829 $2,572,723 $2,572,111 $3,602,680
=========== =========== =========== =========== =========== =========== =========== =========== ===========
</TABLE>
- ----------------
(1) The Company uses certain assumptions to estimate expected maturities. For
assets, expected maturities are based upon contractual maturity, projected
repayments and prepayments of principal. The prepayment experience
reflected herein is based on the Company's historical experience.
(2) The estimated fair values were computed as follows: a) investment and MBS
securities were based on quoted market prices, and b) loans, mortgage
servicing rights and all interest sensitive liabilities were based on an
option adjusted cash flow valuation ("OACFV"), which includes forward
interest rate simulations. There exists a high level of uncertainty related
to the future performance of the credit card portfolio because of the high
levels of delinquencies and charge-offs. As a result, the fair values
included above may not be indicative of the value derived upon a sale of
all or part of the credit card portfolios.
YEAR 2000
The Company utilizes computer software programs, systems and devices with
embedded microchips ("Systems") throughout the organization in order to support
its on-going operations. Corrective action was required for these Systems to
correctly interpret and process dates into 2000. The Company implemented and
completed a plan of corrective action including upgrading and testing all
Systems for Year 2000 compliance. As of the issuing of this report no
significant issues have resulted related to the Systems ability to correctly
interpret and process dates in 2000. The principle tasks remaining are to
perform tests of quarter-end processing and monitoring ongoing operations for
problems that may occur in the months ahead.
The total expense for Year 2000 project activities was $6.3 million. A
significant portion of this cost was for staffing of technology and support
personnel to implement the required modifications and upgrades. Additional
personnel were also required to perform the system testing, produce testing
documentation, and prepare contingency plans required by the Federal Financial
Insurance Examinations Council (the "FFIEC"). The Company had incurred Year 2000
related expenses of $2.5 million and $3.8 million in 1999 and 1998,
respectively.
66
<PAGE>
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities", as
amended by SFAS No. 137. "Accounting for Derivative Instruments and Hedging
Activities -- Deferred at the Effective Date of FASB Statement No. 133",
effective for financial statements for periods beginning after June 15, 2000.
This statement establishes accounting and reporting standards for derivative
instruments and for hedging activities. It requires the Company to recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. This statement allows
derivatives to be designated as hedges only if certain criteria are met, with
the resulting gain or loss on the derivative either charged to income or
reported as a part of other comprehensive income. At this time, the Company has
not determined whether the adoption of SFAS No. 133 will have a material impact
on its operations and financial position.
On March 31, 1999, the FASB issued an Exposure Draft, ACCOUNTING FOR
CERTAIN TRANSACTIONS INVOLVING STOCK Compensation, which is expected to result
in a FASB Interpretation of certain practice issues related to the application
of Accounting Principles Board Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES. The FASB plans to issue a final Interpretation in the first quarter
of 2000. Among other things the Exposure Draft addressed the accounting for
changes to the exercise price or the number of shares to be issued under a stock
option grant that originally qualified as a fixed award. The FASB concluded if
the terms of a stock option, which was originally accounted for as a fixed
award, are modified during the option term to change the exercise price or the
number of shares to be issued, that option shall be accounted for as a variable
award, thereby, requiring the measurement of compensation cost from the date of
modification to the date of exercise. With the exceptions identified below, the
final Interpretation is expected to be effective on and after July 1, 2000, and
the effects of applying the Interpretation shall be recognized on a prospective
basis. With respect to the guidance regarding direct and indirect repricings and
new grants or awards for purposes of determining whether the grantee meets the
definition of an employee under Opinion No. 25 the effective date will be
December 15, 1998, however the effects of application can only be recognized
after June 30, 2000. Because the Company has in the past modified the exercise
price on certain options there maybe a negative effect on future operations
depending on the future movement of the Company's stock price.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMTARY DATA
See Index to Financial Statements on Page F-1.
ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE:
None
67
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated herein by this reference is the information set forth in the
section entitled "DIRECTORS AND EXECUTIVE OFFICERS" contained in the Company's
Proxy Statement for its 2000 Annual Meeting of Stockholders (the "2000 Proxy
Statement").
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by this reference is the information set forth in the
section entitled "EXECUTIVE COMPENSATION" contained in the 2000 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by this reference is the information set forth in the
section entitled "BENEFICIAL OWNERSHIP OF COMMON STOCK" contained in the 2000
Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by this reference is the information set forth in the
section entitled "RELATED PARTY TRANSACTIONS" contained in the 2000 Proxy
Statement.
68
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
EXHIBITS
EXHIBIT
NO. DESCRIPTION
------- -----------------------------------------------------------------
3.1 Certificate of Incorporation of Bank Plus Corporation
(Incorporated by reference to Exhibit 3.1 to the Form 8-B).*
3.2 Amended and Restated Bylaws of Bank Plus Corporation
(incorporated by reference to Exhibit 5 to the current report on
Form 8-K filed with the SEC on March 30, 1999).*
3.3 Certificate of Designations of Series C Junior Participating
Cumulative Preferred Stock (Par Value $.01 per share) of Bank
Plus Corporation (incorporated by reference to Exhibit 3.3 to
the annual report on Form 10-K for the year ended December 31,
1998).*
4.1 Specimen of Common Stock Certificate (incorporated by reference
to Exhibit 4.1 to the Form 8-B).*
4.2 Indenture dated as of July 18, 1997, between Bank Plus
Corporation and The Bank of New York, as trustee relating to the
12% Senior Notes due July 18, 2007, of Bank Plus Corporation
(incorporated by reference to Exhibit 4.4 of the Registration
Statement on Form S-8 of Bank Plus filed on September 4, 1997).*
4.3 Form of Amended and Restated Rights Agreement, dated as of March
26, 1999, between Bank Plus and American Stock Transfer & Trust
Company, as Rights Agent (incorporated by reference to Exhibit 4
to the current report on Form 8-K filed with the SEC on March 30,
1999).*
10.1 Limited Liability Company Agreement of American General Gateway
Services, L.L.C. dated as of January 1, 1999 between VALIC and
Gateway (incorporated by reference to Exhibit 10.45 to the annual
report on Form 10-k for the year ended December 31, 1998).*
10.2 Form of 1999 Nonemployee Director Stock Option Agreement between
the Company and certain nonemployee directors.
10.3 Stock Option Agreement between the Company and James E. Stutz
dated July 28, 1999.
10.4 Service Agreement dated as of October 14, 1999 between Fidelity
and First Data Resources Inc.
10.5 Agreement for Information Technology Services dated as of
December 3, 1999 between Fidelity and Electronic Data Systems
Corporation and Electronic Data Systems Corporation Information
Services L.L.C.
10.6 Agreement to Purchase Assets and Assume Liabilities dated as of
February 7, 2000 by and between Fidelity and First Federal Bank
of California.
10.7 Mortgage Loan Purchase Agreement dated as of February 7, 2000 by
and between Fidelity and First Federal Bank of California.
10.8 Agreement to Purchase Assets and Assume Liabilities dated as of
February 3, 2000 by and between Fidelity and Jackson Federal
Bank.
11. Statement re Computation of Per Share Earnings.
12. Computation of Ratio of Earnings (Loss) to Combined Fixed Charges
and Preferred Stock Dividends.
21.1 List of Subsidiaries.
27. Financial Data Schedule.
- ----------------
* Indicates previously filed documents.
69
<PAGE>
FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
See Index to Financial Statements on page F-1. Financial Statement
Schedules are omitted as the required information is inapplicable or the
information is presented in the consolidated financial statements or related
notes, thereto.
REPORTS ON FORM 8-K
None
70
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
BANK PLUS CORPORATION
By: /s/ GORDON V. SMITH
------------------------
GORDON V. SMITH
CHAIRMAN OF THE BOARD
Date: March 27, 2000
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF REGISTRANT
AND IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<S> <C> <C>
/s/ GORDON V. SMITH Chairman of the Board of Directors March 27, 2000
- ------------------------------------
GORDON V. SMITH
/s/ MARK K. MASON President and Chief Executive Officer; Vice March 27, 2000
- ------------------------------------ Chairman of the Board
MARK K. MASON (Principal Executive Officer)
/s/ NORMAN BARKER, JR. Director March 27, 2000
- ------------------------------------
NORMAN BARKER, JR.
/s/ Irving R. Beimler Director March 27, 2000
- ------------------------------------
IRVING R. BEIMLER
/s/ WALDO H. BURNSIDE Director March 27, 2000
- ------------------------------------
WALDO H. BURNSIDE
/s/ VICTOR H. INDIEK Director March 27, 2000
- ------------------------------------
VICTOR H. INDIEK
/s/ LILLY V. LEE Director March 27, 2000
- ------------------------------------
LILLY V. LEE
/s/ ROBERT W. MEDEARIS Director March 27, 2000
- ------------------------------------
ROBERT W. MEDEARIS
/s/ JOHN M. MICHEL Executive Vice President, Chief Financial Officer March 27, 2000
- ------------------------------------ (Principal Financial and Accounting Officer)
JOHN M. MICHEL
</TABLE>
71
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
INDEPENDENT AUDITORS' REPORT.............................................. F-2
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Statements of Financial Condition........................ F-3
Consolidated Statements of Operations................................. F-4
Consolidated Statements of Comprehensive Income....................... F-5
Consolidated Statements of Stockholders' Equity....................... F-6
Consolidated Statements of Cash Flows................................. F-7
Notes to Consolidated Financial Statements............................ F-9
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Bank Plus Corporation
Los Angeles, California
We have audited the accompanying consolidated statements of financial
condition of Bank Plus Corporation and subsidiaries (the "Company") as of
December 31, 1999 and 1998, and the related consolidated statements of
operations, comprehensive income, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 1999. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Bank Plus Corporation and
subsidiaries at December 31, 1999 and 1998 and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1999 in conformity with accounting principles generally accepted in the
United States of America.
/s/ DELOITTE & TOUCHE LLP
Los Angeles, California
February 11, 2000, except for Note 21,
as to which the date is March 24, 2000
F-2
<PAGE>
<TABLE>
BANK PLUS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
DECEMBER 31,
-----------------------------
1999 1998
-------------- --------------
<S> <C> <C>
ASSETS:
Cash and cash equivalents....................................................... $ 89,541 $ 380,507
Investment securities available for sale ("AFS"), at fair value................. -- 28,797
Investment securities held to maturity, at amortized cost....................... -- 1,084
Mortgage-backed securities ("MBS") available for sale, at fair value............ 320,233 465,010
Loans receivable, net of allowances for estimated loan losses
of $60,278 and $106,171 at December 31, 1999 and 1998, respectively........... 2,169,381 2,665,576
Investment in Federal Home Loan Bank ("FHLB") stock............................. 31,142 65,358
Premises and equipment.......................................................... 33,441 39,042
Other assets.................................................................... 39,714 66,685
-------------- --------------
Total Assets....................................................................... $ 2,683,452 $ 3,712,059
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Liabilities:
Deposits...................................................................... $ 2,501,246 $ 2,922,531
FHLB advances................................................................. 20,000 585,000
Senior Notes.................................................................. 51,478 51,478
Other liabilities............................................................. 14,280 25,390
-------------- --------------
Total Liabilities.......................................................... 2,587,004 3,584,399
-------------- --------------
Commitments and contingencies
Minority interest............................................................... 272 272
Stockholders' equity:
Common stock:
Common stock, par value $.01 per share; 78,500,000 shares authorized;
19,463,343 and 19,434,043 shares outstanding
at December 31, 1999 and December 31, 1998, respectively................. 195 194
Paid-in capital............................................................... 275,285 275,131
Accumulated other comprehensive loss.......................................... (9,272) (2,795)
Accumulated deficit........................................................... (170,032) (145,142)
-------------- --------------
Total Stockholders' Equity................................................. 96,176 127,388
-------------- --------------
Total Liabilities and Stockholders' Equity......................................... $ 2,683,452 $ 3,712,059
============== ==============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
<TABLE>
BANK PLUS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
INTEREST INCOME:
Loans........................................................ $ 212,455 $ 225,029 $ 205,275
MBS.......................................................... 22,669 43,305 29,435
Investment securities and other.............................. 15,567 32,013 20,297
-------------- -------------- --------------
Total interest income...................................... 250,691 300,347 255,007
-------------- -------------- --------------
INTEREST EXPENSE:
Deposits..................................................... 113,155 145,020 126,717
FHLB advances................................................ 24,525 57,992 40,807
Other borrowings............................................. 6,293 6,192 6,485
-------------- -------------- --------------
Total interest expense..................................... 143,973 209,204 174,009
-------------- -------------- --------------
Net interest income............................................. 106,718 91,143 80,998
Provision for estimated loan losses............................. 78,800 73,032 13,004
-------------- -------------- --------------
Net interest income after provision for estimated loan losses... 27,918 18,111 67,994
-------------- -------------- --------------
NONINTEREST INCOME (EXPENSE):
Loan fee income.............................................. 3,380 3,255 2,076
Credit card fees............................................. 29,693 21,414 45
Fee income from the sale of uninsured investment products.... 6,195 7,019 5,959
Fee income from deposits and other fee income................ 3,876 3,331 3,365
Losses on securities and trading activities.................. -- (860) (2,168)
Gain on sale of branches, net................................ 5,914 -- --
Fee income from ATM cash services............................ 1,314 3,375 1,049
Other (expense) income....................................... (293) (481) 37
Real estate operations, net.................................. (719) (2,635) (6,473)
-------------- -------------- --------------
Total noninterest income................................... 49,360 34,418 3,890
-------------- -------------- --------------
OPERATING EXPENSE:
Personnel and benefits....................................... 44,098 46,040 29,564
Occupancy.................................................... 15,555 14,591 11,647
Federal Deposit Insurance Corporation ("FDIC") insurance..... 7,286 2,637 2,563
Professional services........................................ 14,207 16,901 11,054
Credit card data processing.................................. 11,143 10,848 --
Office-related expenses...................................... 5,856 6,759 3,819
Other........................................................ 3,995 7,183 4,449
-------------- -------------- --------------
Total operating expense.................................... 102,140 104,959 63,096
-------------- -------------- --------------
(Loss) earnings before income taxes and minority
interest in subsidiary....................................... (24,862) (52,430) 8,788
Income tax expense (benefit).................................... -- 3,870 (8,100)
-------------- -------------- --------------
(Loss) earnings before minority interest in subsidiary.......... (24,862) (56,300) 16,888
Minority interest in subsidiary................................. 28 28 4,235
-------------- -------------- --------------
(Loss) earnings available for common stockholders............... $ (24,890) $ (56,328) $ 12,653
============== ============== ==============
(LOSS) EARNINGS PER SHARE:
Basic........................................................ $ (1.28) $ (2.90) $ 0.67
============== ============== ==============
Diluted...................................................... $ (1.28) $ (2.90) $ 0.66
============== ============== ==============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic........................................................ 19,460,941 19,395,337 18,794,887
============== ============== ==============
Diluted...................................................... 19,460,941 19,395,337 19,143,233
============== ============== ==============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
<TABLE>
BANK PLUS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(DOLLARS IN THOUSANDS)
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
(Loss) earnings available for common stockholders............ $ (24,890) $ (56,328) $ 12,653
-------------- -------------- --------------
Other comprehensive (loss) earnings:
Investment and MBS AFS:
Unrealized holding losses arising during
the period, net....................................... (6,477) (2,565) (1,807)
Reclassification adjustment for (gains) losses
included in earnings/loss, net........................ -- (1,461) 2,355
-------------- -------------- --------------
Total............................................... (6,477) (4,026) 548
-------------- -------------- --------------
Derivative financial instruments:
Unrealized holding gains (losses) arising during
the period, net....................................... -- 1,376 (6,068)
Reclassification adjustment for losses
included in earnings/loss, net........................ -- 4,322 10
-------------- -------------- --------------
Total............................................... -- 5,698 (6,058)
-------------- -------------- --------------
Other comprehensive (loss) earnings....................... (6,477) 1,672 (5,510)
-------------- -------------- --------------
Comprehensive (loss) earnings................................ $ (31,367) $ (54,656) $ 7,143
============== ============== ==============
See notes to consolidated financial statements.
</TABLE>
F-5
<PAGE>
<TABLE>
BANK PLUS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<CAPTION>
ACCUMULATED
COMMON STOCK OTHER TOTAL
------------------------ PAID-IN COMPREHENSIVE ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL GAIN/(LOSS) DEFICIT EQUITY
------------- --------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997...................... 18,245,265 $ 182 $ 261,902 $ 1,043 $ (101,470) $ 161,657
Accumulated other comprehensive loss.......... -- -- -- (5,510) -- (5,510)
Minority interest in subsidiary............... -- -- -- -- 3 3
Acquisition of Hancock Savings Bank, FSB
("Hancock")................................ 1,058,575 11 12,001 -- -- 12,012
Exercise of stock options..................... 63,375 1 529 -- -- 530
Net earnings for 1997......................... -- -- -- -- 12,653 12,653
------------- --------- ------------- ------------- ------------- -------------
Balance, December 31, 1997.................... 19,367,215 194 274,432 (4,467) (88,814) 181,345
Accumulated other comprehensive
earnings................................... -- -- -- 1,672 -- 1,672
Exercise of stock options and other stock
activity................................... 66,828 -- 699 -- -- 699
Net loss for 1998............................. -- -- -- -- (56,328) (56,328)
------------- --------- ------------- ------------- ------------- -------------
Balance, December 31, 1998.................... 19,434,043 194 275,131 (2,795) (145,142) 127,388
Accumulated other comprehensive loss.......... -- -- -- (6,477) -- (6,477)
Exercise of stock options and other stock
activity................................... 29,300 1 154 -- -- 155
Net loss for 1999............................. -- -- -- -- (24,890) (24,890)
------------- --------- ------------- ------------- ------------- -------------
Balance, December 31, 1999.................... 19,463,343 $ 195 $ 275,285 $ (9,272) $ (170,032) $ 96,176
============= ========= ============= ============= ============= =============
See notes to consolidated financial statements.
</TABLE>
F-6
<PAGE>
<TABLE>
BANK PLUS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) earnings................................................. $ (24,890) $ (56,328) $ 12,653
Adjustments to reconcile net (loss) earnings to net
cash provided by (used in) operating activities:
Provisions for estimated loan and real estate losses........... 78,985 73,283 14,064
Net losses on sale of loans and securities..................... 552 10 2,131
FHLB stock dividends........................................... (2,216) (3,699) (3,473)
Depreciation and amortization.................................. 8,052 7,373 4,764
Accretion of premiums, net deferred loan fees and credit card
fees and amortization of discounts........................... (16,784) (6,382) 263
Deferred income tax (benefit) expense.......................... (56) 3,117 (8,353)
Issuance of stock and stock options............................ -- 460 --
Purchases of MBS held for trading................................... -- (48,978) (60,717)
Principal repayments of MBS held for trading........................ -- 2,829 2,405
Proceeds from sales of MBS held for trading......................... -- 86,481 31,915
Proceeds from redemption (purchases) of FHLB stock.................. 36,992 (1,250) (3,506)
Interest receivable decrease (increase)............................. 4,353 5,364 (2,795)
Other assets decrease............................................... 14,223 6,335 31,317
Interest payable (decrease) increase................................ (6,074) (4,383) 989
Other liabilities (decrease) increase............................... (4,134) 1,852 (5,681)
-------------- -------------- --------------
Net cash provided by operating activities......................... 89,003 66,084 15,976
-------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Hancock acquisition................................................. -- -- 52,908
Coast Federal Bank, FSB ("Coast") deposit acquisition............... -- -- 47,489
Purchases of investment securities AFS.............................. -- (28,600) --
Maturities of investment securities AFS............................. 28,831 10,000 15,000
Proceeds from sales of investment securities AFS ................... -- 90,805 42,850
Maturities of investment securities held to maturity................ 1,143 2,280 2,286
Purchases of MBS AFS................................................ (135,478) (159,835) (945,191)
Principal repayments of MBS AFS..................................... 270,070 374,316 62,798
Proceeds from sales of MBS AFS...................................... -- 167,343 234,747
Principal repayments of MBS held to maturity........................ -- -- 3,037
Purchase of derivative securities................................... -- (5,322) (3,541)
Loans receivable, net decrease (increase)........................... 423,979 74,318 (52,292)
Proceeds from sale of real estate................................... 18,293 28,956 59,542
Purchases of premises and equipment................................. (535) (11,792) (3,768)
-------------- -------------- --------------
Net cash provided by (used in) investing activities............... 606,303 542,469 (484,135)
-------------- -------------- --------------
(CONTINUED ON FOLLOWING PAGE)
</TABLE>
F-7
<PAGE>
<TABLE>
BANK PLUS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
(DOLLARS IN THOUSANDS)
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Demand deposits and passbook savings, net (decrease) increase.... $ (24,107) $ 34,156 $ (3,179)
Certificate accounts, net (decrease) increase.................... (397,178) (3,426) 146,518
Proceeds from FHLB advances...................................... 55,000 705,000 1,320,941
Repayments of FHLB advances...................................... (620,000) (1,129,960) (760,832)
Short-term borrowing decrease.................................... -- -- (40,000)
Repayments of long-term borrowings............................... -- -- (100,000)
Proceeds from exercise of stock options.......................... 13 239 530
-------------- -------------- --------------
Net cash (used in) provided by financing activities............ (986,272) (393,991) 563,978
-------------- -------------- --------------
Net (decrease) increase in cash and cash equivalents................ (290,966) 214,562 95,819
Cash and cash equivalents at beginning of period.................... 380,507 165,945 70,126
-------------- -------------- --------------
Cash and cash equivalents at end of the period...................... $ 89,541 $ 380,507 $ 165,945
============== ============== ==============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid on deposits, advances and other borrowings......... $ 148,548 $ 212,222 $ 171,811
Income tax (refunds) payments.................................... (1,768) 755 (493)
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Real estate acquired through foreclosure......................... 14,620 25,500 53,214
Loans originated to finance sale of real estate owned ("REO").... 2,116 189 8,378
Transfers of MBS from held to maturity portfolio to AFS
portfolio...................................................... -- -- 26,998
Exchange of Preferred Stock for Senior Notes..................... -- -- 51,478
Stock awards and restricted stock issued......................... 142 -- --
DETAILS OF HANCOCK ACQUISITION:
Fair value of assets and core deposit intangibles................ -- -- 212,693
Goodwill......................................................... -- -- 6,589
Liabilities assumed.............................................. -- -- 207,270
Common stock issued.............................................. -- -- 12,012
Cash acquired.................................................... -- -- 52,908
See notes to consolidated financial statements.
</TABLE>
F-8
<PAGE>
BANK PLUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1999
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Bank Plus
Corporation ("Bank Plus") and subsidiaries. Bank Plus is the holding company for
Fidelity Federal Bank, A Federal Savings Bank, and its subsidiaries (the "Bank"
or "Fidelity") and Gateway Investment Services, Inc. ("Gateway") a National
Association of Securities Dealers, Inc. ("NASD") registered broker/dealer
(collectively, the "Company"). The Company offers a broad range of consumer
financial services, including demand and term deposits, uninsured investment
products, including mutual funds and annuities and loans. Fidelity operates
through 36 full-service branches, 35 of which are located in Southern
California, principally in Los Angeles and Orange counties, and one of which is
located in Bloomington, Minnesota which is subject to a contract of sale. All
significant intercompany transactions and balances have been eliminated. Certain
reclassifications have been made to prior years' consolidated financial
statements to conform to the 1999 presentation.
On July 18, 1997, the Company completed an exchange offer (the "Exchange
Offer") of the Company's 12% Senior Notes due July 18, 2007 ("Senior Notes") for
the outstanding shares of 12% Noncumulative Exchangeable Perpetual Preferred
Stock, Series A (the "Preferred Stock") issued by Fidelity in 1995. The Company
accepted 2,059,120 shares of Preferred Stock in exchange for approximately $51.5
million principal amount of Senior Notes. Holders of approximately 11,000 shares
of the Preferred Stock elected not to participate in the Exchange Offer and
these shares are reflected as minority interest on the statement of financial
condition.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, amounts due from banks, federal funds sold and whole loan
investment repurchase agreements. Generally, federal funds are sold for one-day
periods. There were no federal funds outstanding at December 31, 1999 and $220.0
million outstanding at December 31, 1998. There were no whole loan investment
repurchase agreements at December 31, 1999 and 1998. At December 31, 1999,
noninterest-earning cash reserves, maintained by Fidelity to meet requirements
of the Federal Reserve System, totaled $8.4 million.
INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES
The Company's securities principally consist of mortgage-backed securities
("MBS"). The Company classifies its securities as held to maturity, trading and
available for sale ("AFS"). Held to maturity securities are carried at amortized
cost, while trading and AFS securities are carried at fair value. Unrealized
gains or losses on trading securities are reflected currently in earnings.
Unrealized gains and losses on AFS securities are reflected as accumulated other
comprehensive earnings (loss) in stockholder's equity. Interest income is
recognized using the level yield method and gains or losses on sales are
recorded on a specific identification basis.
MORTGAGE LOANS
Loans are considered impaired when it is deemed probable that all principal
and interest amounts due according to the contracted terms of the loan agreement
will not be collected. The Company may measure impairment by discounting
expected future cash flows at the loan's effective interest rate, or by
F-9
<PAGE>
BANK PLUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
reference to an observable market price, or by determining the fair value of the
collateral for a collateral dependent asset. When a determination is made that
foreclosure is probable, the Company will measure impairment based on the fair
value of the collateral.
Interest on loans, including impaired loans, is credited to income as
earned and is accrued only if deemed collectible. Unpaid interest is reversed
when a loan becomes 90 days contractually delinquent or if management determines
it is warranted prior to becoming 90 days delinquent. While a loan is on
nonaccrual status, interest is recognized only as cash is received. Loan
origination fees, certain direct costs of originating loans and discounts and
premiums on purchased loans are deferred, classified with loans receivable on
the statement of financial condition, and are credited or charged to interest
income over the contractual or estimated life of the related loans using the
interest method. When a loan is sold the remaining unamortized origination fees,
origination costs, discounts or premiums are recognized as an adjustment to the
related gain or loss on sale. Other loan fees and charges, including prepayment
fees, late fees and other miscellaneous servicing fees, are recognized in income
when charged.
CREDIT CARD LOANS
Interest on credit card loans is recognized when charged to the customer.
The Company charges annual fees related to the renewal of its credit card
products and, prior to 1999, charged application fees related to the issuance of
certain credit card products. Credit card application fees, annual fees and
direct origination costs are deferred and amortized into income over twelve
months. Other fees, including late fees, cash advance fees and interchange fees,
are recognized as income when charged to the borrower or received from a
merchant.
ALLOWANCES FOR ESTIMATED LOAN LOSSES
The allowances for estimated loan losses represents the Company's estimate
of identified and unidentified credit losses in the Company's loan portfolios.
These estimates, while based upon historical loss experience and other relevant
data, are ultimately subjective and inherently uncertain. The Company
establishes specific valuation allowances ("SVAs") for estimated losses on loans
where a loss has been identified and an allowance for loan and lease losses
("ALLL") for the inherent risk in the loan portfolios which has yet to be
specifically identified. With the exception of credit card loans, SVAs are
allocated from the ALLL when, in the Company's judgment, a loan is impaired and
the loss is probable and estimable. When these estimated losses are determined
to be permanent, such as when a mortgage loan is foreclosed and the related
property is transferred to REO, the estimated loss is charged-off. Credit card
loans are charged off to the ALLL upon reaching 180 days delinquency or earlier
in certain circumstances. Amounts charged-off include uncollected principal,
finance charges, late fees and other fees.
The Company establishes the level of the ALLL utilizing several models and
methodologies which are based upon a number of factors, including historical
loss experience, the level of nonperforming and internally classified loans, the
composition of the loan portfolio, estimated remaining lives of the various
types of loans within the portfolio, prevailing and forecasted economic
conditions and management's judgment. Additions to the ALLL, in the form of
provisions, are reflected in the results of current operations. Allocations of
SVAs and charge-offs of credit cards are deducted from the ALLL and recoveries
of previous allocations of SVAs or amounts previously charged-off are recorded
as additions to the ALLL.
F-10
<PAGE>
BANK PLUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LOAN SERVICING
Fidelity services mortgage loans in its own portfolio and mortgage loans
owned by investors. Fees earned for servicing loans owned by investors are
reported as income when the related loan payments are collected. Loan servicing
costs are charged to expense as incurred. The mortgage servicing rights are
amortized in proportion to and over the period of estimated net future servicing
fee income. The Company periodically evaluates capitalized mortgage servicing
rights for impairment, which represents the excess of unamortized cost over fair
value. Impairment, if identified, is recognized in a valuation allowance in the
period of impairment. At December 31, 1999, mortgage servicing rights were $1.2
million and no valuation allowance was required.
REAL ESTATE OWNED
REO is acquired when property collateralizing a loan is foreclosed upon or
otherwise acquired by the Company in satisfaction of the loan. REO is recorded
at the lower of fair value or the recorded investment in the loan satisfied at
the date of foreclosure. Fair value is based on the net amount that the Company
could reasonably expect to receive for the asset in a current sale between a
willing buyer and a willing seller, that is, other than in a forced or
liquidation sale. Inherent in the computation of estimated fair value are
assumptions about the length of time the Company may have to hold the property
before disposition. The holding costs through the expected date of sale and
estimated disposition costs are contemplated in the determination of the fair
value. Adjustments to the carrying value of the assets are made through SVAs and
charge-offs.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization are computed principally on the straight-line
method over the estimated useful lives of the related assets. Leasehold
improvements are amortized over the shorter of the lives of the respective
leases or the useful lives of the improvements.
INTANGIBLE ASSETS
The excess of cost over the fair value of net assets acquired in connection
with the acquisition of Hancock in 1997, which is included in other assets in
the consolidated statements of financial condition, is being amortized to
operations over fifteen years. The cost of core deposits purchased is being
amortized to interest expense over the average life of the deposits acquired,
generally five to ten years. At December 31, 1999, goodwill totaled $5.6 million
and had a remaining life of 13 years and the cost of core deposits purchased
totaled $6.5 million and had a remaining life of 5 years.
INCOME TAXES
Deferred tax assets and liabilities are determined based on temporary
differences between financial reporting and tax basis of assets and liabilities
and are measured by applying enacted tax rates and laws to taxable years in
which such temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company employed various derivative financial instruments to hedge
valuation fluctuations in its trading and AFS securities portfolios in 1998 and
1997. Financial instruments entered into for trading purposes are carried at
fair value, with realized and unrealized changes in fair values recognized in
F-11
<PAGE>
BANK PLUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
earnings in the period in which the changes occur. Financial instruments used to
hedge the fluctuations in fair values of AFS securities are carried at fair
value, with realized and unrealized changes in fair value reflected as
accumulated other comprehensive earnings (loss) in stockholders' equity.
Realized gains and losses on termination of such hedge instruments are amortized
into interest income or expense over the expected remaining life of the hedged
asset. Management monitors the correlation of the changes in fair values between
the hedge instruments and the securities being hedged to ensure the hedge
remains highly effective. If the criteria for hedge accounting is not met, the
fair value adjustments of the derivative instruments are reported in current
earnings. As of December 31, 1999 and 1998, the Company had no derivative
financial instruments outstanding.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted ("GAAP") in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities", as amended by SFAS No. 137.
"Accounting for Derivative instruments and Hedging Activities -- Deferred at the
Effective Date of SFAS Statement No. 133", effective for financial statements
for periods beginning after June 15, 2000. This statement establishes accounting
and reporting standards for derivative instruments and for hedging activities.
It requires the Company to recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. This statement allows derivatives to be designated as hedges only
if certain criteria are met, with the resulting gain or loss on the derivative
either charged to income or reported as a part of other comprehensive income. At
this time, the Company has not determined whether the adoption of SFAS No.
133 will have a material impact on its operations and financial position.
On March 31, 1999, the FASB issued an Exposure Draft, ACCOUNTING FOR
CERTAIN TRANSACTIONS INVOLVING STOCK COMPENSATION, which is expected to result
in a FASB Interpretation of certain practices issues related to the application
of Accounting Principles Board Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES. The FASB plans to issue a final Interpretation in the first quarter
of 2000. Among other things the Exposure Draft addressed the accounting for
changes to the exercise price or the number of shares to be issued under a stock
option grant that originally qualified as a fixed award. The FASB concluded if
the terms of a stock option, which was originally accounted for as a fixed
award, are modified during the option term to change the exercise price or the
number of shares to be issued, that option shall be accounted for as a variable
award, thereby, requiring the measurement of compensation cost from the date of
modification to the date of exercise. With the exceptions identified below, the
final Interpretation is expected to be effective on and after July 1, 2000, and
the effects of applying the Interpretation shall be recognized on a prospective
basis. With respect to the guidance regarding direct and indirect repricings and
new grants or awards for purposes of determining whether the grantee meets the
definition of an employee under Opinion No. 25 the effective date will be
December 15, 1998, however the effects of application can only be recognized
after June 30, 2000. Because the Company has in the past modified the exercise
price on certain options there maybe a negative affect on future operations
depending on the future movement of the Company's stock price.
F-12
<PAGE>
BANK PLUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2--ACQUISITIONS
On July 29, 1997, the Company completed the acquisition of all of the
outstanding common stock of Hancock, a Los Angeles-based financial institution
with five branches. The total consideration paid to Hancock stockholders was
1,058,575 shares of Bank Plus Common Stock valued at $12.0 million. The
acquisition of Hancock was accounted for as a purchase and was reflected in the
consolidated statements of financial condition of the Company as of June 30,
1997. The Company's consolidated statement of operations includes the revenues
and expenses of the acquired business beginning July 1, 1997. As a result of the
acquisition, the Company recorded goodwill of $6.6 million and a core deposit
intangible of $8.6 million.
On September 19, 1997, the Company purchased $48.6 million of deposits from
another financial institution branch located in Westwood, California and
recorded a core deposit intangible of $1.5 million.
NOTE 3--INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES
The following table summarizes the debt securities AFS portfolio as of the
dates indicated:
<TABLE>
<CAPTION>
UNREALIZED
AMORTIZED ---------------------------------------------- AGGREGATE
COST GAINS LOSSES NET FAIR VALUE
-------------- -------------- -------------- -------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
DECEMBER 31, 1999:
MBS:
Federal Home Loan Mortgage Corporation
("FHLMC")..................................... $ 2,334 $ -- $ (46) $ (46) $ 2,288
Federal National Mortgage Association
("FNMA")...................................... 135,621 -- (5,854) (5,854) 129,767
Government National Mortgage Association
("GNMA")...................................... 62,992 -- (1,946) (1,946) 61,046
Participation certificates...................... 21,508 -- -- -- 21,508
Collateralized mortgage obligations ("CMO")..... 45,413 -- (1,306) (1,306) 44,107
Asset backed security........................... 22,056 -- (95) (95) 21,961
Mortgage-backed note............................ 39,581 -- (25) (25) 39,556
-------------- -------------- -------------- -------------- --------------
Total securities AFS............................... $ 329,505 $ -- $ (9,272) $ (9,272) $ 320,233
============== ============== ============== ============== ==============
DECEMBER 31, 1998:
Investment securities:
Commercial paper................................ $ 28,797 $ -- $ -- $ -- $ 28,797
-------------- -------------- -------------- -------------- --------------
MBS:
FHLMC 3,843 -- (52) (52) 3,791
FNMA............................................ 170,506 232 (752) (520) 169,986
GNMA............................................ 86,422 218 (84) 134 86,556
Participation certificates...................... 23,055 -- -- -- 23,055
CMO 90,683 119 (2,130) (2,011) 88,672
Financing note trust............................ 48,084 -- (332) (332) 47,752
Mortgage-backed note............................ 45,212 -- (14) (14) 45,198
-------------- -------------- -------------- -------------- --------------
Total MBS..................................... 467,805 569 (3,364) (2,795) 465,010
-------------- -------------- -------------- -------------- --------------
Total securities AFS............................... $ 496,602 $ 569 $ (3,364) $ (2,795) $ 493,807
============== ============== ============== ============== ==============
</TABLE>
F-13
<PAGE>
BANK PLUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
There were no securities held to maturity as of December 31, 1999. At
December 31, 1998 the Company's held to maturity portfolio consists of U. S.
Treasury securities which have been pledged as credit support to a
securitization of loans. The following table summarizes the debt securities held
to maturity portfolios:
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED AGGREGATE
COST GAINS FAIR VALUE
-------------- -------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
DECEMBER 31, 1998:
Investment securities................... $ 1,084 $ 15 $ 1,099
============== ============== ==============
</TABLE>
The following table summarizes the weighted average yield of debt
securities as of the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
Investment securities:
AFS............................................................. --% 5.55%
Held to maturity................................................ -- 6.19
MBS:
AFS............................................................. 7.07 6.79
</TABLE>
The following table presents the AFS portfolio at December 31, 1999 by
contractual maturity. Actual maturities on MBS may differ from contractual
maturities due to prepayments.
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED AGGREGATE
COST LOSSES FAIR VALUE
-------------- -------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
AFS:
MBS:
Within 1 year.......................... $ 85,016 $ (571) $ 84,445
Greater than 10 years.................. 244,489 (8,701) 235,788
-------------- -------------- --------------
Total AFS................................... $ 329,505 $ (9,272) $ 320,233
============== ============== ==============
</TABLE>
F-14
<PAGE>
BANK PLUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes gains and losses realized on debt
securities, the costs of which were computed on a specific identification
method, during the periods indicated. No gains or losses were realized on debt
securities during 1999.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1998 1997
-------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Sales:
AFS.................................................... $ 258,148 $ 277,597
Trading................................................ 86,481 31,915
-------------- --------------
Total................................................ $ 344,629 $ 309,512
============== ==============
Gains (losses) on securities and trading activities, net:
AFS portfolio:
Gains................................................ $ 49 $ 2,483
Losses............................................... (368) --
-------------- --------------
Total.............................................. (319) 2,483
-------------- --------------
Trading portfolio:
Realized (losses) gains, net......................... (541) 187
Unrealized losses, net............................... -- --
-------------- --------------
Total.............................................. (541) 187
-------------- --------------
Losses on securities transferred to AFS portfolio...... -- (4,838)
-------------- --------------
Total..................................................... $ (860) $ (2,168)
============== ==============
</TABLE>
At December 31, 1999 and 1998, interest receivable in the accompanying
statements of financial condition include accrued interest receivable on debt
securities of $2.8 million and $3.1 million, respectively.
In 1997, the Company transferred two securities from the held to maturity
portfolio to the AFS portfolio and recorded a loss of $4.8 million. The transfer
was the result of significant deterioration in the credit worthiness of the
borrowers of the underlying loans collateralizing the securities.
NOTE 4--DERIVATIVE FINANCIAL INSTRUMENTS
In 1998 and 1997, the Company employed various derivative financial
instruments to hedge valuation fluctuations in its trading and AFS securities
portfolios. During 1998, the Company used futures on Treasury Notes to hedge the
valuation fluctuations of its fixed rate MBS portfolio. Based on historical
performance, futures on Treasury Notes provided an expectation of high
correlation with the MBS. Based on the correlation analysis completed for the
period ended June 30, 1998, it was determined that high correlation in the
fluctuations of the fair values of the MBS and the hedge instruments had not
occurred. Due to the volatility of the correlation between futures on Treasury
Notes and the cost of a hedging program in relation to its benefits, the Company
terminated this hedging program in July 1998. As a result, the Company recorded
a loss of $4.0 million, which represented the extent to which the futures
results had not been offset by the effects of price changes on the MBS. The
remaining losses on the hedge program which totaled $5.0 million, were recorded
as adjustments to the cost basis of the securities being hedged and are being
amortized over the remaining life of the MBS as a yield adjustment. The
amoritization of the hedge loss was $0.7 million for both the years ended
December 31, 1999 and 1998, respectively. At December 31, 1999, the remaining
unamortized loss was $2.5 million.
F-15
<PAGE>
BANK PLUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5--LOANS RECEIVABLE
Loans receivable are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1999 1998
-------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Real estate loans:
Single family (1 to 4 units)..................................... $ 550,840 $ 768,824
Multifamily:
5 to 36 units................................................. 1,125,304 1,220,585
37 units and over............................................. 201,644 247,638
-------------- --------------
Total multifamily........................................... 1,326,948 1,468,223
Commercial and industrial........................................ 125,379 179,956
Land............................................................. 38 39
-------------- --------------
Total real estate loans..................................... 2,003,205 2,417,042
Credit card loans................................................... 210,643 350,078
Other............................................................... 14,259 29,884
-------------- --------------
Total loans, gross.................................................. 2,228,107 2,797,004
-------------- --------------
Less:
Undisbursed loan funds........................................... -- 42
Unearned (premiums) discounts, net............................... (8,163) (4,227)
Deferred loan fees and other..................................... 6,611 29,442
Allowances for estimated losses.................................. 60,278 106,171
-------------- --------------
Total ........................................................ 58,726 131,428
-------------- --------------
Total loans, net.................................................... $ 2,169,381 $ 2,665,576
============== ==============
</TABLE>
Fidelity's portfolio of mortgage loans serviced for others amounted to
$241.2 million at December 31, 1999 and $278.3 million at December 31, 1998. The
Bank previously sold the servicing rights to substantially all of the single
family loans in the Bank's loan portfolio during the second quarter of 1996. The
servicing rights to $938.5 million in loans were transferred and the Company
realized a gain of $7.9 million. Such gains were accounted for as a reduction in
the carrying value of the loans based on the relative fair values of the
servicing sold and loans retained and was being accreted over the estimated life
of the loans. The related accretion totaled $0.3 million, $1.2 million and $2.2
million during 1999, 1998 and 1997, respectively. Fidelity repurchased the
servicing rights to $488 million currently in its mortgage portfolio in the
third quarter 1999. The remaining deferred servicing gain of $1.8 million was
offset against the premium paid for this transaction.
Fidelity's mortgage loan portfolio includes multifamily, commercial and
industrial loans which depend primarily on operating income to provide debt
service coverage. These loans generally have a greater risk of default than
single family residential loans. All of these loans are secured by property
within the State of California.
Fidelity's credit card loans, which were primarily marketed to customers
with lower credit quality, are generally unsecured open-end borrowings that have
experienced high levels of delinquency and defaults. At December 31, 1999 and
1998, $18.3 million and $26.1 million of the credit card loans were secured by
real estate. In the fourth quarter of 1999, Fidelity sold a 100% participation
F-16
<PAGE>
BANK PLUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
in one of the programs with outstanding receivables of $8.7 million. No gain or
loss was recognized on this transaction. During 1998, Fidelity terminated
programs with marketers of the two largest credit card programs which accounted
for 91% of the outstanding credit card balances at December 31, 1999. In
addition, the marketer of the real estate secured credit card program ceased
originating new accounts in 1998.
The Company has modified the terms of a number of its mortgage loans to
protect its investment by granting concessions to borrowers because of
borrowers' financial difficulties. These modifications take several forms,
including interest only payments for a limited time at current rates, a reduced
loan balance in exchange for a payment of the loan or other terms that the Bank
deems appropriate in the circumstances. Modifications are granted when the
collateral is inadequate or the borrower does not have the ability or
willingness to continue making scheduled payments and management determines that
the modification is the best alternative for the collection of its investment.
Modifications are reported as Troubled Debt Restructurings ("TDRs") as defined
by SFAS No. 15, "Accounting by Debtors and Creditors for Troubled Debt
Restructurings", and accounted for in accordance with SFAS No. 15 and SFAS No.
114, "Accounting by Creditors for Impairment of a Loan". At December 31, 1999
and 1998, outstanding TDRs totaled $30.9 million and $48.0 million,
respectively.
For the years ended December 31, 1999, 1998 and 1997, interest income of
$2.3 million, $4.0 million and $3.4 million, respectively, was recorded on TDRs.
Total loans on nonaccrual status was $6.9 million and $14.4 million at
December 31, 1999 and 1998, respectively. The reduction in income related to
nonaccrual loans was $0.4 million, $1.9 million and $3.9 million for 1999, 1998
and 1997, respectively.
Of the total deferred loan fees at December 31, 1999, $4.0 million were
related to mortgage loans and $3.5 million were related to credit card loans.
Deferred loan fees on credit card loans represent annual fees charged to the
cardholder.
NOTE 6--REAL ESTATE OWNED
REO, which is included in other assets, consists of the following at the
dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1999 1998
-------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Real estate acquired through foreclosure........................... $ 3,080 $ 9,536
Allowance for estimated losses..................................... (658) (1,139)
-------------- --------------
Net........................................................... $ 2,422 $ 8,397
============== ==============
</TABLE>
The following summarizes the results of REO operations for the periods
indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1999 1998 1997
-------------- -------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Expenses from:
Real estate operations......................... $ (534) $ (2,384) $ (5,413)
Provision for estimated real estate losses..... (185) (251) (1,060)
-------------- -------------- --------------
Net expense from real estate operations....... $ (719) $ (2,635) $ (6,473)
============== ============== ==============
</TABLE>
F-17
<PAGE>
BANK PLUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7--ALLOWANCE FOR ESTIMATED LOAN AND REAL ESTATE OWNED LOSSES
The following summarizes the activity in the allowances for estimated loan
and real estate losses for the periods indicated:
<TABLE>
<CAPTION>
REAL ESTATE
LOANS OWNED TOTAL
-------------- -------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balance at January 1, 1997......................... $ 57,508 2,081 59,589
Charge-offs..................................... (41,190) (2,810) (44,000)
Recoveries and other............................ 8,446 672 9,118
-------------- -------------- --------------
Net charge-offs............................... (32,744) (2,138) (34,882)
Provision for losses............................ 13,004 1,060 14,064
Allowances related to acquisition............... 12,770 120 12,890
-------------- -------------- --------------
Balance at December 31, 1997....................... 50,538 1,123 51,661
Charge-offs..................................... (25,366) (258) (25,624)
Recoveries and other............................ 5,062 23 5,085
-------------- -------------- --------------
Net charge-offs............................... (20,304) (235) (20,539)
Provision for losses............................ 73,032 251 73,283
Transfer to ALLL from cash reserves............. 2,905 -- 2,905
-------------- -------------- --------------
Balance at December 31, 1998....................... 106,171 1,139 107,310
Charge-offs..................................... (131,295) (274) (131,569)
Recoveries and other............................ 5,492 (392) 5,100
-------------- -------------- --------------
Net charge-offs............................... (125,803) (666) (126,469)
Provision for losses............................ 78,800 185 78,985
Transfer to ALLL from cash reserves............. 1,110 -- 1,110
-------------- -------------- --------------
Balance at December 31, 1999....................... $ 60,278 $ 658 $ 60,936
============== ============== ==============
</TABLE>
At December 31, 1999 and 1998, the gross recorded investment in mortgage
loans that are considered to be impaired was $32.5 million, and $42.0 million,
respectively. Included in these amounts are impaired mortgage loans of $14.2
million and $22.5 million at December 31, 1999 and 1998, respectively, for which
SVAs have been established totaling $2.1 million and $6.2 million, respectively.
The average balance of impaired mortgage loans was $37.3 million and $41.4
million for the year ended December 31, 1999 and 1998, respectively. The amount
of interest income recognized on impaired mortgage loans was $2.5 million, $2.9
million and $2.1 million in 1999, 1998 and 1997, respectively.
In addition to reserves established by the Bank, cash reserves have been
provided by credit card affinity marketer under the credit enhancement programs
which are utilized to purchase accounts from the Bank after the accounts reach a
certain delinquent status. At December 31, 1999 and 1998, cash reserves were
$2.7 million and $1.9 million, respectively, and were recorded as deposits on
the Company's statements of financial condition. Accounts purchased from cash
reserves during 1999 and 1998 totaled $2.7 million and $25.7 million,
respectively, and are not included in the above table. During 1998, the Company
terminated its agreement with the marketer of the largest credit enhanced credit
card program, whereby the marketer was relieved of their obligation to reimburse
Fidelity for credit losses and Fidelity received any remaining cash reserves
from the program. As a result, $1.1 million and $2.9 million of cash reserves
were transferred into Fidelity's ALLL during 1999 and 1998, respectively.
The amount of the Bank's allowance for loan losses represents management's
estimate of the amount of loan losses likely to be incurred by the Bank during
the next 12 months that were inherent in the loan portfolio balances at December
31, 1999, based upon various assumptions as to economic and other conditions. As
F-18
<PAGE>
BANK PLUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
such, the allowance for loan losses does not represent the amount of such losses
that could be incurred under adverse conditions that management does not
consider to be the most likely to arise. In addition, management's
classification of assets and evaluation of the adequacy of the allowance for
loan losses is an ongoing process. Consequently, there can be no assurance that
material additions to the Bank's allowance for loan losses will not be required
in the future, thereby adversely affecting earnings and the Bank's ability to
maintain or build capital. While management believes that the current allowance
is adequate to absorb the known and inherent risks in the loan portfolio, no
assurances can be given that the allowance is adequate or that economic
conditions which may adversely affect the Bank's market area or other
circumstances will not result in future loan losses, which may not be covered
completely by the current allowance or may require an increased provision which
could have a significant adverse effect on the Bank's financial condition,
results of operations and levels of regulatory capital.
NOTE 8--DEPOSITS
Deposits consist of the following balances at the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------
1999 1998
------------------------ -----------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
AMOUNT RATE AMOUNT RATE
----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
TYPE OF ACCOUNT:
Passbook.................................................. $ 49,973 2.00% $ 56,836 2.00%
Checking and money market checking........................ 369,071 1.34 380,292 1.24
Money market savings...................................... 50,428 3.75 56,451 3.68
----------- -----------
Total transaction accounts.............................. 469,472 1.67 493,579 1.61
----------- -----------
Certificates of deposit ("CDs"):
Less than $100,000...................................... 1,422,303 4.71 1,795,000 5.06
Greater than $100,000................................... 609,471 4.99 633,952 5.32
----------- -----------
Total CDs............................................. 2,031,774 4.79 2,428,952 5.12
----------- -----------
Total deposits............................................ $2,501,246 4.21 $2,922,531 4.53
=========== ===========
</TABLE>
Fidelity had noninterest-bearing checking accounts of $105.3 million and
$111.5 million at December 31, 1999 and 1998, respectively. At December 31,
1999, CDs were scheduled to mature as follows:
AMOUNT
--------------
(DOLLARS IN
YEAR OF MATURITY THOUSANDS)
- ----------------
2000....................................................... $ 1,711,952
2001....................................................... 290,792
2002....................................................... 20,167
2003....................................................... 4,198
2004....................................................... 4,051
After 2004................................................. 614
--------------
Total................................................... $ 2,031,774
==============
F-19
<PAGE>
BANK PLUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company may utilize brokered deposits as a short-term means of funding.
These deposits are obtained or placed by or through a deposit broker and are
subject to certain regulatory limitations. The Company did not use this funding
source in 1999 or 1998 and accordingly had no brokered deposits outstanding at
December 31, 1999 and 1998.
NOTE 9--FEDERAL HOME LOAN BANK ADVANCES
FHLB advances are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------
1999 1998 1997
-------------- -------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balance at year-end......................................... $ 20,000 $ 585,000 $ 1,009,960
Average amount outstanding during the year.................. 435,377 1,005,388 698,261
Maximum amount outstanding at any month-end................. 585,000 1,189,960 1,209,960
Weighted average interest rate during the year.............. 5.62% 5.77% 5.84%
Weighted average interest rate at year-end.................. 8.61% 5.69% 5.82%
Secured by:
FHLB Stock.............................................. $ 31,142 $ 65,358 $ 60,498
Mortgage loans.......................................... 148,872 413,192 1,315,389
Investment securities and MBS........................... 28,133 367,729 581,445
-------------- -------------- --------------
Total.................................................. $ 208,147 $ 846,279 $ 1,957,332
============== ============== ==============
</TABLE>
The FHLB advance of $20.0 million outstanding at December 31, 1999 matured
on February 7, 2000, and was repaid through available funds.
NOTE 10--OTHER BORROWINGS
At December 31, 1999 and 1998, the Company's other borrowings consisted of
Senior Notes of $51.5 million. These Senior Notes bear interest at 12%, payable
quarterly, and mature in 2007. During 1999, Senior Note interest payments were
funded by the preferred stock dividend from Fidelity, cash on hand at Bank Plus,
and dividends from Gateway. Bank Plus holds $51.5 million of Preferred Stock of
Fidelity, which pays quarterly 10% dividends that are not subject to the prior
approval of the Office of Thrift Supervision (the "OTS") unless, among other
things, the Bank's regulatory capital falls below the level to be categorized as
adequately capitalized. No assurance can be given that funds will continue to be
available at Bank Plus to pay future interest payments, or that the OTS will
approve the preferred stock dividends in the future if the Bank's regulatory
capital falls below the level to be categorized as adequately capitalized or for
other safety and soundness considerations. If in the event of default by Bank
Plus, the holders of not less than 25% in principal amount of the Senior Notes
then outstanding may declare all the Senior Notes to be immediately due and
payable.
F-20
<PAGE>
BANK PLUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11--BENEFIT PLANS
RETIREMENT INCOME PLAN
In February 1994, the Board of Directors passed a resolution to amend the
retirement income plan by discontinuing participation in the plan by newly hired
employees and freezing the level of service and salaries used to compute the
plan benefit to February 28, 1994 levels. The Bank has funded the retirement
income plan such that the fair value of plan assets exceed the projected benefit
obligation. The defined benefit plan provides for payment of retirement benefits
commencing normally at age 65 in a monthly annuity; however, the option of a
lump sum payment is available upon retirement or in the event of early
termination. Annual contributions to the plan and earnings on plan assets are
sufficient to satisfy legal funding requirements.
The components of net pension costs are as follows for the periods
indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1999 1998 1997
-------------- -------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Interest cost.............................................. $ 149 $ 163 $ 158
Actual return on plan assets............................... (272) (246) (207)
Net amortization and deferral.............................. (93) (69) (51)
Effect of partial settlements.............................. 28 120 55
-------------- -------------- --------------
Net pension revenues.................................... $ (188) $ (32) $ (45)
============== ============== ==============
</TABLE>
The funded status of this plan was as follows as of the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1999 1998
-------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Accumulated benefit obligation (all participants are vested)........ $ (1,953) $ (2,397)
Fair value of plan assets........................................... 3,237 3,126
-------------- --------------
Net plan assets over projected benefit obligation............... 1,284 729
Unrecognized net transition gain.................................... (212) --
Minimum liability adjustment........................................ -- 155
-------------- --------------
Prepaid pension cost............................................ $ 1,072 $ 884
============== ==============
Actuarial assumptions:
Discount rate................................................... 7.50% 6.50%
Expected long-term rate of return on plan assets................ 9.00% 9.00%
</TABLE>
401(k) PLAN
The Company has a 401(k) defined contribution plan available to all
employees who have been with the Company for one year and have reached the age
of 21. Employees may generally contribute up to 15% of their salary each year,
and the Company matches 50% up to the first 6% contributed by the employee. The
Company's contribution expense was $0.5 million, $0.4 million and $0.1 million
in the years ended December 31, 1999, 1998 and 1997, respectively.
F-21
<PAGE>
BANK PLUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DIRECTORS' RETIREMENT PLAN
The Directors' Retirement Plan provides for non-employee directors who have
at least three years of Board service and were board members prior to August,
1994.
An eligible director shall, after termination from Board service for any
reason other than cause, be entitled to receive a quarterly payment equal to one
quarter of his/her average annual compensation (including compensation for
service on the Board of Directors of any of the Company's subsidiaries),
including all retainers and meeting fees, received during his/her last three
years of Board service. Such payments shall commence at the beginning of the
first fiscal quarter subsequent to termination and continue for a 3-year period.
If a director's Board membership is terminated for cause, no benefits are
payable under this plan.
If a director's Board membership is terminated within two years following
the effective date of a change in control, then he/she shall be eligible for a
lump sum payment in an amount that is the greater of: (1) 150% times average
annual compensation during the preceding 3-year period, (2) the sum of all
retirement benefits payable under normal retirement provisions described in the
preceding paragraph, or (3) $78,000. The Company's accumulated benefit
obligation was $1.0 million and $0.9 million at December 31, 1999 and 1998, and
net pension costs were $0.1 million, $0.3 million and $0.3 million for 1999,
1998 and 1997, respectively.
F-22
<PAGE>
BANK PLUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12--INCOME TAXES
Income tax expense (benefit) was comprised of the following for the periods
indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1999 1998 1997
-------------- -------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Current income tax expense:
Federal................................................. $ 7 $ 716 $ 199
State................................................... 49 37 54
-------------- -------------- --------------
Total.................................................. 56 753 253
-------------- -------------- --------------
Deferred income tax expense (benefit):
Federal................................................. (35) 3,547 (7,425)
State................................................... (21) (430) (928)
-------------- -------------- --------------
Total.................................................. (56) 3,117 (8,353)
-------------- -------------- --------------
Total income tax expense (benefit).......................... $ -- $ 3,870 $ (8,100)
============== ============== ==============
</TABLE>
Income tax asset (liability) was comprised of the following at the dates
indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1999 1998
-------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Current income tax asset(liability):
Federal......................................................... $ -- $ 1,532
State........................................................... 90 382
-------------- --------------
Total....................................................... 90 1,914
-------------- --------------
Deferred income tax asset (liability):
Federal......................................................... 65,308 54,364
Valuation allowance--Federal.................................... (62,653) (51,744)
State........................................................... 15,726 13,496
Valuation allowance--State...................................... (14,481) (12,272)
-------------- --------------
Total....................................................... 3,900 3,844
-------------- --------------
Total income tax asset.............................................. $ 3,990 $ 5,758
============== ==============
</TABLE>
F-23
<PAGE>
BANK PLUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The components of the net deferred tax asset (liability) are as follows at
the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1999 1998
------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
FEDERAL:
Deferred tax assets:
Bad debt and loan loss deduction................................... $ 34,528 $ 28,587
Net operating loss carryover....................................... 34,891 25,081
Alternative minimum tax credit carryover........................... 3,663 3,624
Contingent liabilities............................................. 649 1,427
Debt modification gain............................................. 1,030 1,027
Depreciation....................................................... 1,778 1,139
Deferred fees on credit cards...................................... -- 7,614
Receivable from credit card marketer............................... -- 2,865
Unrealized loss on securities AFS.................................. 3,245 978
Core deposits intangible........................................... 3,602 3,614
Other.............................................................. 2,325 4,526
------------ ------------
Gross deferred tax assets............................................ 85,711 80,482
------------ ------------
Deferred tax liabilities:
Loan fees and interest............................................. (4,397) (5,370)
FHLB stock dividends............................................... (8,677) (16,402)
Mark to market adjustment.......................................... (3,245) (978)
Other.............................................................. (4,084) (3,368)
------------ ------------
Gross deferred tax liabilities....................................... (20,403) (26,118)
------------ ------------
Net deferred tax assets before valuation allowance................... 65,308 54,364
Valuation allowance.................................................. (62,653) (51,744)
------------ ------------
Net deferred tax asset............................................... $ 2,655 $ 2,620
============ ============
STATE:
Deferred tax assets:
Bad debt and loan loss deduction................................... $ 13,286 $ 11,021
Net operating loss carryover....................................... 4,919 3,269
Contingent liabilities............................................. 200 439
Depreciation....................................................... 747 583
Deferred fees on credit cards...................................... -- 2,342
Receivable from credit card marketer............................... -- 881
Alternative minimum tax credit carryover........................... 404 404
Core deposits intangible........................................... 305 310
Unrealized loss on securities AFS.................................. 998 303
Other.............................................................. 783 1,551
------------ ------------
Gross deferred tax assets............................................ 21,642 21,103
------------ ------------
Deferred tax liabilities:
Loan fees and interest............................................. (1,321) (1,620)
FHLB stock dividends............................................... (2,668) (5,044)
Mark to market adjustment.......................................... (1,042) (367)
Other.............................................................. (885) (576)
------------ ------------
Gross deferred tax liabilities....................................... (5,916) (7,607)
------------ ------------
Net deferred tax assets before valuation allowance................... 15,726 13,496
Valuation allowance.................................................. (14,481) (12,272)
------------ ------------
Net deferred tax asset............................................... $ 1,245 $ 1,224
============ ============
Combined total........................................................... $ 3,900 $ 3,844
============ ============
</TABLE>
F-24
<PAGE>
BANK PLUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Under SFAS No. 109, "Accounting for Income Taxes", the recognition of a net
deferred tax asset is dependent upon a "more likely than not" expectation of
realization of the deferred tax asset, based upon the analysis of available
evidence. A valuation allowance is required to sufficiently reduce the deferred
tax asset to the amount that is expected to be realized on a "more likely than
not" basis. The analysis of available evidence is performed each quarter
utilizing the "more likely than not" criteria to determine the amount, if any,
of the deferred tax asset to be realized. Adjustments to the valuation allowance
are made accordingly. There can be no assurance that the Company will recognize
additional portions of the deferred tax asset in future periods or that
additional valuation allowances may not be recorded in future periods.
In accordance with SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities", certain securities were classified as AFS during
the year. Under SFAS No. 115, adjustments to the fair market value of securities
held as AFS are reflected through an adjustment to stockholders' equity. No
associated deferred tax asset was recorded in stockholder's equity as of
December 31, 1999 and 1998, in accordance with the deferred tax recognition
rules of SFAS No. 109.
A reconciliation from the consolidated statutory federal income tax expense
(benefit) to the consolidated effective income tax expense (benefit) follows for
the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1999 1998 1997
-------------- -------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Expected federal income tax (benefit) expense......... $ (8,702) $ (18,351) $ 3,075
Increases (reductions) in taxes resulting from:
Franchise tax (benefit) expense, net of federal
income tax and valuation allowance............... 18 (256) (568)
Addition (reduction) to valuation allowance....... 8,642 22,230 (9,973)
Goodwill amortization............................. 156 156 77
Other............................................. (114) 91 (711)
-------------- -------------- --------------
Income tax expense (benefit).......................... $ -- $ 3,870 $ (8,100)
============== ============== ==============
</TABLE>
The Internal Revenue Service is currently examining the federal income tax
returns for the short year ended December 31, 1994 and the calendar years 1995,
1996 and 1997. The Company does not expect the results of this audit to have a
material adverse effect on the consolidated financial statements of the Company.
Internal Revenue Code ("IRC") Sections 382 and 383 and the Treasury
Regulations thereunder generally provide for limitations on the ability of a
corporation to utilize net operating loss ("NOL") or credit carryforwards to
offset taxable income or reduce its tax liability in taxable years following a
change of control. In addition, the rules restrict the ability of a corporation
to recognize certain losses during the first five years after a change of
control if the losses existed, but were not recognized, as of the date of the
change of control. In general, the annual limitation with respect to these items
is determined by computing the product of the fair market value of the
corporation immediately prior to the change of control and the federal long-term
tax exempt interest rate in effect at that time, as prescribed by the Internal
Revenue Service.
As of December 31, 1999, the Bank had an estimated NOL carryover for
federal income tax purposes of $99.7 million expiring in years 2008 through
2019. Of this amount, $59.8 million is subject to annual utilization limitations
imposed by IRC Section 382. For California franchise tax purposes, the Bank had
an estimated NOL carryover of $45.4 million. Of the estimated California NOL
F-25
<PAGE>
BANK PLUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
carryover, $41.8 million expires in years 2000 through 2004, and $3.6 million
expires in years 2000 through 2009. Of the total $45.4 million California NOL,
$15.7 million is subject to annual utilization limitations imposed by IRC
Section 382.
Under the provisions of SFAS No. 109, a deferred tax liability has not been
provided for the tax bad debt and loan loss reserves that arose in years prior
to 1988. The Bank had an adjusted pre-1988 total loan loss reserve balance of
$26.3 million at December 31, 1999, for which no income taxes have been
provided. The remaining adjusted pre-1988 total loan loss reserve will be
recaptured into taxable income in the event Fidelity (1) ceases to be a "bank"
or "thrift," (2) makes distributions to shareholders in excess of current or
accumulated post-1951 earnings and profits, or (3) makes distributions to
shareholders in a partial or complete redemption or liquidation. The Bank does
not intend to enter into a transaction that would result in a recapture of
pre-1988 reserves if such recapture would create an additional tax liability.
NOTE 13--COMMITMENTS AND CONTINGENCIES
As of December 31, 1999, significant litigation outstanding against the
Company included:
NATIONWIDE CAPITAL COMPANY CREDIT CARD LITIGATION. The plaintiff alleges
that it had relationships with various automobile dealers and a marketing
company, and that the Bank interfered with the relationships when the Bank
terminated an affinity credit card program with the marketing company under a
program involving those dealers. The plaintiff is seeking unspecified actual and
exemplary damages.
CLASS ACTION SECURITIES LITIGATION. Two purported class actions against the
Company and its current and former chief executive officers allege failure to
make adequate and timely disclosure of losses in the Bank's credit card
operations. One action has been voluntarily dismissed by the plaintiffs.
ADC CREDIT CARD LITIGATION. Approximately 100 lawsuits, and two purported
class actions, have been asserted against the Bank, primarily in Alabama, but
also in Mississippi and West Virginia. The litigation arises from a credit card
affinity program in which independent third party distributors sold consumer
appliances door-to-door, and concurrently offered the consumer an opportunity to
apply for a MasterCard credit card to be issued by the Bank which would be used
to pay for the appliance. The plaintiffs generally allege that the salespersons
misrepresented the terms of the credit cards.
DURGA MA ARBITRATION. The plaintiff had two signed agreements with the Bank
pertaining to proposed private label credit card programs under which cards
would be issued by the Bank to customers of jewelry retailers. The Bank did not
issue any cards, and the plaintiff commenced arbitration against the Bank for
"breach of contract and fraud".
INTERNET CASINO LITIGATION. The plaintiff, on behalf of a purported class,
contends that she placed bets through a gambling site on the Internet, and
charged her gambling expenses to a Fidelity MasterCard credit card. The
plaintiff alleges that the Bank, by allowing its credit card to be used as a
payment device for illegal gambling, violated a variety of federal and state
statutes.
The Company believes that it has significant defenses to the foregoing
claims or any claims for damages and intends to defend itself vigorously.
However, the legal responsibility and financial exposure with respect to
foregoing claims presently cannot be reasonably ascertained and, accordingly,
there is a risk that the outcome of one or more of these outstanding claims
could result in the payment of amounts which could be material in relation to
the financial condition or results of operations of the Bank.
F-26
<PAGE>
BANK PLUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OTHER MATTERS. In the course of its current compliance examination of the
Bank, the OTS has raised concerns regarding the Bank's credit card operations,
principally with respect to the credit card origination, servicing and
collection activities of third parties under contracts that have been terminated
or are in the process of winding down. While these third parties were required
to satisfy regulatory requirements applicable to their respective functions, it
is possible that the Bank may be held responsible for violations by these third
parties. The Bank has responded to preliminary issues raised by the OTS, but the
OTS has not issued its final report. The Bank is therefore, uncertain as to the
OTS' ultimate determinations on these issues, and possible resulting regulatory
actions or sanctions may have a material adverse effect on the financial
condition or results of operations of the Company.
The Company has a number of other lawsuits and claims pending arising in
the normal course of business. The Company's management and its counsel believe
that the lawsuits and claims are without merit. There is a risk that the final
outcome of one or more of these claims could result in the payment of monetary
damages which could be material in relation to the financial condition or
results of operations of the Company. The Company does not believe that the
likelihood of such a result is probable and has not established any specific
litigation reserves with respect to such lawsuits.
Fidelity enters into agreements to extend credit to customers on an ongoing
basis. Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Most commitments are expected to be
drawn upon and, therefore, the total commitment amounts generally represent
future cash requirements. At December 31, 1999, the Company had $3.4 million in
commitments to fund loans. In addition, the Company has extended lines of credit
in the form of credit cards and other totaling $304.8 million. At December 31,
1999, the unused and available portion of the credit lines extended included
$44.0 million related to credit cards and 39.8 million related to overdraft
reserve lines on checking accounts and other credit lines.
As of December 31, 1999, the Company had certain mortgage loans with a
gross principal balance of $73.5 million, of which $61.4 million had been put
into the form of mortgage pass-through certificates, over various periods of
time, leaving a balance of $12.1 million in loans retained by the Company. These
mortgage pass-through certificates provide a credit enhancement to the investors
in the form of the Company's subordination of its retained percentage interest
to that of the investors. In this regard, the aggregate of $61.4 million are
deemed Senior Mortgage Pass-Through Certificates and the $12.1 million in loans
held by the Company are subordinated to the Senior Mortgage Pass-Through
Certificates in the event of borrower default. Full recovery of the $12.1
million is subject to this contingent liability due to its subordination. In
1993, the Bank repurchased a portion of the mortgage pass-through certificates,
and at December 31, 1999, the balance of the repurchased certificate was $21.6
million and was included in the MBS AFS portfolio and accounted for in
accordance with SFAS No. 115. The other Senior Mortgage Pass-Through
Certificates totaling $39.8 million at December 31, 1999, are owned by other
investor institutions. The contingent liability for credit losses on these
mortgage pass-through certificates was $0.5 million and $0.9 million at December
31, 1999 and 1998, respectively, and is included in other liabilities.
The Company also effected the securitization by FNMA of multifamily
mortgages wherein whole loans were swapped for Triple A rated MBS through FNMA's
Alternative Credit Enhancement Structure ("ACES") program. These MBS were later
sold and the current outstanding balance as of December 31, 1999, of $79.6
million is serviced by the Company, including commitments assumed as a result of
the Hancock acquisition. As part of a credit enhancement to absorb losses
relating to the ACES transaction, the Company has pledged and placed in a trust
account, as of December 31, 1999, $17.4 million, comprised of $13.3 million in
cash and $4.1 million in MBS. The Company shall absorb losses, if any, which may
be incurred on the securitized multifamily loans to the extent of $13.9 million.
F-27
<PAGE>
BANK PLUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FNMA is responsible for any losses in excess of $13.9 million. The corresponding
contingent liability for credit losses was $1.3 million and $2.3 million at
December 31, 1999 and 1998, respectively, and is included in other liabilities.
The Company conducts portions of its operations from leased facilities. All
of the Company's leases are operating leases. At December 31, 1999, aggregate
minimum rental commitments on operating leases with noncancelable terms in
excess of one year were as follows:
AMOUNT
---------------
(DOLLARS IN
YEAR OF COMMITMENT THOUSANDS)
------------------
2000................................................... $ 4,500
2001................................................... 4,300
2002................................................... 3,200
2003................................................... 2,400
2004................................................... 2,000
Thereafter............................................. 5,700
---------------
Total................................................. $ 22,100
===============
Rental expenses were $4.1 million in 1999 and 1998, and $2.9 million in
1997.
F-28
<PAGE>
BANK PLUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14--REGULATORY MATTERS
The OTS capital regulations, as required by the Financial Institutions
Reform, Recovery, and Enforcement Act of 1989 ("FIRREA") include three separate
minimum capital requirements for the savings institution industry--a "tangible
capital requirement", a "core capital" and a "risk-based capital requirement".
The Bank's actual and required capital are as follows at the dates
indicated:
<TABLE>
<CAPTION>
MINIMUM TO BE WELL
CAPITALIZED UNDER
MINIMUM PROMPT CORRECTIVE
ACTUAL CAPITAL REQUIREMENT ACTION PROVISIONS
------------------------ ------------------------ ------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
----------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1999:
Total capital (to risk-weighted
assets)........................ $ 159,952 10.09% $ 126,796 8.00% $ 158,495 10.00%
Core capital (to adjusted
tangible assets)............... 139,689 5.22 80,306 3.00 133,843 5.00
Tangible capital (to tangible 139,689 5.22 40,153 1.50 N/A
assets)........................
Tier I capital (to risk-
weighted assets)............... 139,689 8.81 N/A 95,097 6.00
MINIMUM TO BE
ADEQUATELY CAPITALIZED
UNDER PROMPT
MINIMUM CORRECTIVE ACTION
ACTUAL CAPITAL REQUIREMENT PROVISIONS
------------------------ ------------------------ ------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
----------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
AS OF DECEMBER 31, 1998:
Total capital (to risk-weighted
assets)........................ $ 188,746 8.95% $ 168,656 8.00% $ 168,656 8.00%
Core capital (to adjusted
tangible assets)............... 161,506 4.36 111,028 3.00 148,037 4.00
Tangible capital (to tangible 161,506 4.36 55,514 1.50 N/A
assets)............................
Tier I capital (to risk-
weighted assets)............... 161,506 7.66 N/A 84,328 4.00
</TABLE>
F-29
<PAGE>
BANK PLUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table reconciles the Company's capital in accordance with
GAAP to the Bank's tangible, core and risk-based capital at the dates indicated:
<TABLE>
<CAPTION>
TANGIBLE CORE RISK-BASED
CAPITAL CAPITAL CAPITAL
------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
AS OF DECEMBER 31, 1999:
Consolidated stockholders' equity................ $ 96,176 $ 96,176 $ 96,176
Adjustments:
Fidelity's Preferred Stock..................... 51,750 51,750 51,750
Bank Plus equity excluding Fidelity............ (1,250) (1,250) (1,250)
------------ ------------ ------------
Fidelity's stockholders' equity.................. 146,676 146,676 146,676
Accumulated other comprehensive loss............. 9,272 9,272 9,272
Adjustments:
Intangible assets.............................. (12,352) (12,352) (12,352)
Nonincludable subsidiaries..................... (1) (1) (1)
Excess ALLL.................................... -- -- 20,263
Net deferred tax assets........................ (3,906) (3,906) (3,906)
------------ ------------ ------------
Regulatory capital................................. $ 139,689 $ 139,689 $ 159,952
============ ============ ============
AS OF DECEMBER 31, 1998:
Consolidated stockholders' equity................ $ 127,388 $ 127,388 $ 127,388
Adjustments:
Fidelity's Preferred Stock..................... 51,750 51,750 51,750
Bank Plus equity excluding Fidelity............ (6,152) (6,152) (6,152)
------------ ------------ ------------
Fidelity's stockholders' equity.................. 172,986 172,986 172,986
Accumulated other comprehensive loss............. 2,795 2,795 2,795
Adjustments:
Intangible assets.............................. (14,268) (14,268) (14,268)
Nonincludable subsidiaries..................... (7) (7) (7)
Excess ALLL.................................... -- -- 27,240
------------ ------------ ------------
Regulatory capital................................. $ 161,506 $ 161,506 $ 188,746
============ ============ ============
</TABLE>
As of December 31, 1999 and 1998, the Bank was "well capitalized" and
"adequately capitalized", respectively, under the Prompt Corrective Action
("PCA") regulations adopted by the OTS pursuant to the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA"). As of December 31, 1999, the
most constraining of the capital ratio measurements was risk-based capital to
risk-weighted assets which had an excess of $1.4 million above the minimum level
required to be considered well capitalized. The Bank's capital amounts and
classification are subject to review by federal regulators about components,
risk-weightings and other factors. Due to the expectation of continuing losses
in the credit card operations, or a significant write-down in the carrying value
of the credit card portfolios as a result of the adoption of alternative
strategies, the Bank expects to be adequately capitalized in 2000.
An institution whose capital does not meet the amounts required in order to
be adequately capitalized will be treated as undercapitalized. If an
undercapitalized institution's capital ratios are less than 6.0% of total
capital to risk-weighted assets, 3.0% of core capital to risk-weighted assets,
or 3.0% of core capital to adjusted total assets, it will be treated as
significantly undercapitalized. Finally, an institution will be treated as
critically undercapitalized if its ratio of "tangible equity" (core capital plus
cumulative preferred stock minus intangible assets other than supervisory
goodwill and purchased mortgage servicing rights) to adjusted total assets is
equal to or less than 2.0%.
F-30
<PAGE>
BANK PLUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
An institution's capital category is based on its capital levels as of the
most recent of the following dates (1) the date the institution's most recent
quarterly Thrift Financial Report ("TFR") was required to be filed with the OTS,
(2) the date the institution received from the OTS its most recent final report
of examination, or (3) the date the institution received written notice from the
OTS of the institution's capital category. If subsequent to the most recent TFR
or report of examination a material event has occurred that would cause the
institution to be placed in a lower capital category, the institution must
provide written notice to the OTS within 15 days, and the OTS shall determine
whether to change the association's capital category.
As a result of the OTS' findings during their 1998 safety and soundness
examination, the Bank is subject to certain regulatory restrictions including,
but not limited to: (i) a prohibition, absent OTS prior approval, on increases
in total assets during any quarter in excess of an amount equal to net interest
credited on deposit liabilities during the quarter, (ii) a requirement that the
Bank submit to the OTS for prior review and approval the names of proposed new
directors and senior executive officers and proposed employment contracts with
any director or executive officer, (iii) a requirement that the Bank submit to
the OTS for prior review and approval any third party contracts outside the
normal course of business, and (iv) the ability of the OTS, in its discretion,
to require 30 days prior notice of all transactions between the Bank and its
affiliates.
NOTE 15--EARNINGS PER SHARE
The reconciliation of the numerators and denominators used in basic and
diluted (loss) earnings per share ("EPS") follows for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1999 1998 1997
-------------- -------------- --------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
(Loss) earnings available for common stockholders..... $ (24,890) $ (56,328) $ 12,653
============== ============== ==============
Weighted average common shares outstanding:
Basic............................................. 19,460,941 19,395,337 18,794,887
Effect of dilutive securities-- stock options..... -- -- 348,152
Effect of dilutive securities-- deferred
stock awards.................................... -- -- 194
-------------- -------------- --------------
Diluted........................................... 19,460,941 19,395,337 19,143,233
============== ============== ==============
(Loss) earnings per share:
Basic............................................. $ (1.28) $ (2.90) $ 0.67
Effect of dilutive securities-- stock options..... -- -- (0.01)
Effect of dilutive securities-- deferred
stock awards.................................... -- -- --
-------------- -------------- --------------
Diluted........................................... $ (1.28) $ (2.90) $ 0.66
============== ============== ==============
</TABLE>
For the years ended December 31, 1999 and 1998, there are no potentially
dilutive common shares included in the calculation of diluted EPS because
including them would have an anti-dilutive effect.
NOTE 16--STOCK OPTION PLANS
STOCK OPTION PLANS
F-31
<PAGE>
BANK PLUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On February 26, 1997, the Board of Directors of the Company adopted a Stock
Option and Equity Incentive Plan (the "Stock Option Plan"). The Stock Option
Plan consists of certain amendments to, and a restatement of, the Bank's 1996
Stock Option Plan. The Stock Option Plan provides (1) the granting of stock
options, restricted stock and deferred stock units, (2) deferred stock awards in
lieu of cash compensation otherwise payable to directors, and (3) stock options,
restricted stock or deferred stock units in lieu of cash awards for senior
officers. 2,125,000 shares of the Bank's Common Stock are available for grants
under the Stock Option Plan. The Stock Option Plan provides for annual grants of
2,500 stock options to non-employee directors, which vest immediately. The Stock
Option Plan is administered by the Compensation/Stock Options Committee of the
Board of Directors, which is authorized to select award recipients, establish
award terms and conditions, and make other related administrative determinations
in accordance with the provisions of the Stock Option Plan. Unexercised options
granted under the Stock Option Plan expire on the earlier of the tenth
anniversary of the date of grant or 90 days following the effective date of the
recipients termination of employment. In the event of an employees' termination
for cause, all outstanding options are cancelled as of the effective date of
such termination.
In conjunction with a restructuring of senior management, the Board of
Directors approved the following in November 1998: (1) the majority of
outstanding stock options granted, excluding options granted to directors, were
cancelled and replaced by new stock options issued at an exercise price of
$3.81, the closing stock price on November 19, 1998, (2) new and certain
continuing members of executive management received grants of stock options, (3)
all new stock options will vest based upon stock price performance (average
closing price of $4.00-10%, $5.00-25%, $6.00-40%, $7.00-55%, $8.00-70%,
$9.00-85%, and $10.00-100%) or 100% vesting upon a change-in-control or after a
7 year period from the date of grant, and (4) the Stock Option Plan was amended
to provide that the annual grant limit per employee has been increased from
100,000 to 750,000 shares. The options that had been granted prior to November
1998 and that were still outstanding at December 31, 1998 vest over a four year
period; 10% on the first anniversary of the date of grant and 30% on each
subsequent anniversary date.
The following is a summary of the Stock Option Plan for the periods
indicated:
<TABLE>
<CAPTION>
AVERAGE
NUMBER OPTION
OF OPTIONS PRICE
------------- --------
<S> <C> <C>
Balance, January 1, 1997............................................ 1,279,200 $ 8.35
Granted........................................................... 122,500 10.96
Expired........................................................... (114,450) 8.35
Exercised......................................................... (63,375) 8.35
-------------
Balance, December 31, 1997.......................................... 1,223,875 8.61
Granted prior to November 1998.................................... 740,500 14.01
Granted during and after November 1998............................ 1,342,000 3.81
Cancelled and expired............................................. (1,396,625) 11.11
Exercised......................................................... (23,000) 10.39
-------------
Balance, December 31, 1998.......................................... 1,886,750 5.44
Granted........................................................... 555,000 5.15
Cancelled and expired............................................. (465,725) 8.46
Exercised......................................................... (3,400) 3.81
-------------
Balance, December 31, 1999.......................................... 1,972,625 4.65
=============
</TABLE>
F-32
<PAGE>
BANK PLUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of the outstanding stock options at December 31, 1999 follows:
WEIGHTED AVERAGE
NUMBER REMAINING
EXERCISE PRICES OF OPTIONS CONTRACTUAL LIFE
----------------------------- ---------- ----------------
$ 3.81 1,248,500 8.9
$4.00--9.50 551,000 9.5
$ 8.35 138,125 5.9
$10.25 17,500 7.3
$14.06 17,500 8.3
----------
Total.......................... 1,972,625
==========
At December 31, 1999, 597,750 stock options were vested and exercisable.
The following is a summary of deferred stock awards granted to non-employee
directors in lieu of cash compensation for the periods indicated:
NUMBER
OF SHARES
-------------
Awards earned in 1997 and balance, December 31, 1997..... 6,982
Awards earned.......................................... 20,564
Stock issued........................................... (8,272)
-------------
Balance, December 31, 1998............................... 19,274
Awards earned.......................................... 58,436
-------------
Balance, December 31, 1999............................... 77,710
=============
At December 31, 1999, the Company had 40,016 shares of restricted stock
issued to senior officers. These grants vest 33.3% on January 1, 1999, 33.3% on
January 1, 2000 and 33.3% on January 1, 2001. In addition, during 1999, 12,559
grants vested upon termination of two senior officers. During 1998, 63,853 had
been granted in lieu of $0.5 million in cash bonuses and 23,837 of the grants
were cancelled.
Compensation expense recorded with regards to the deferred stock awards to
non-employee directors and restricted stock awards to senior officers was $0.1
million and less than $0.1 million in 1999 and 1998, respectively.
F-33
<PAGE>
BANK PLUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The fair value of options granted under the Stock Option Plan for 1999,
1998 and 1997 were estimated on the date of grant using the Black-Scholes
option-pricing model with the following assumptions used for 1999, 1998 and
1997, respectively: no dividend yield, expected stock price volatility of 68%,
74% and 60% for 1999, 1998 and 1997, respectively, based on daily market prices
for the preceding five year period, average risk free interest rate equivalent
to the 10-year Treasury rate on the date of the grant of 6.42%, 4.68% and 5.74%
for 1999, 1998 and 1997, respectively, and an option contract life of 10 years.
The Company applied the intrinsic value method as prescribed by Accounting
Principles Board Opinion No. 25 and related Interpretations in accounting for
its stock option and purchase plans. Accordingly, no compensation cost has been
recognized for its Stock Option Plan. Had compensation cost for the Company's
Stock Option Plan been determined based on the fair value at the grant dates for
awards under the Stock Option Plan consistent with the method of SFAS No. 123,
the Company's net earnings and EPS for the years ended December 31, 1999, 1998
and 1997 would have been changed to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1999 1998 1997
-------------- -------------- --------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net (loss) earnings to common stockholders:
As reported........................................ $ (24,890) $ (56,328) $ 12,653
Pro forma.......................................... (25,566) (57,061) 9,182
Basic net (loss) earnings per common share:
As reported........................................ (1.28) (2.90) 0.67
Pro forma.......................................... (1.31) (2.94) 0.49
Diluted net (loss) earnings per common share:
As reported........................................ (1.28) (2.90) 0.66
Pro forma.......................................... (1.31) (2.94) 0.48
Weighted-average fair value per share of
options granted...................................... 1.98 2.98 9.57
</TABLE>
Not included above are 200,000 stock options issued to a third party in
exchange for consulting services. Included in consulting expense is $0.2 million
for the year ended December 31, 1998, related to the issuance of these options
which had an average option price of $12.66. Associated with the settlement of
obligations related to the termination of an executive officer, the Company
issued 35,556 shares of stock to the executive officer and recorded $0.3 million
of compensation expense in 1998.
F-34
<PAGE>
BANK PLUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17--FAIR VALUE OF FINANCIAL INSTRUMENTS
The following is the Company's disclosure of the estimated fair value of
financial instruments. The estimated fair value amounts have been determined by
the Company using available market information and appropriate valuation
methodologies. However, considerable judgment is required to interpret market
data to develop the estimates of fair value. Accordingly, the estimates
presented herein are not necessarily indicative of the amounts the Company could
realize in a current market exchange. The use of different market assumptions
and/or estimation methodologies may have a material effect on the estimated fair
value amounts.
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
-------------------------- --------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Financial assets:
Investment securities AFS............... $ -- $ -- $ 28,797 $ 28,797
Investment securities held to maturity.. -- -- 1,084 1,099
MBS AFS................................. 320,233 320,233 465,010 465,010
Loans receivable........................ 2,169,381 2,109,540 2,665,576 2,707,333
Mortgage servicing rights............... 1,186 5,733 1,630 5,368
Financial liabilities:
Deposits................................ 2,501,246 2,493,644 2,922,531 2,939,723
FHLB advances........................... 20,000 20,137 585,000 596,293
Senior Notes............................ 51,478 58,330 51,478 67,227
</TABLE>
The following methods and assumptions were used in estimating fair value
disclosures for financial instruments:
INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES
Estimated fair values for investment and MBS are based on quoted market
prices, where available. If quoted market prices are not available, estimated
fair values are based on quoted market prices of comparable instruments.
LOANS RECEIVABLE
The estimated fair values of loans are based on an option adjusted cash
flow valuation ("OACFV"). The OACFV includes forward interest rate simulations
and uses a range of discount rates to adjust for the credit quality of loans.
Such valuations may not be indicative of the value derived upon a sale of all or
part of the portfolio. The credit card portfolio is relatively unseasoned and
was generally marketed to customers with lower credit quality. In addition,
there exists a high level of uncertainty related to the future performance of
the credit card portfolio because of the high levels of delinquencies and
charge-offs. As a result, the fair value of the credit card portfolio may be
significantly less than the carrying amount.
The fair value of loans other than mortgage loans or credit card loans is
equal to the carrying amount of the related loans.
F-35
<PAGE>
BANK PLUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MORTGAGE SERVICING RIGHTS
The estimated fair values of mortgage servicing rights are based on an
OACFV analysis.
DEPOSITS
The fair value of demand deposits, savings accounts and certain money
market deposits is the amount payable on demand. The fair value of fixed rate
CDs is estimated by using an OACFV analysis.
BORROWINGS
The estimated fair value is based on an OACFV model.
OTHER FINANCIAL INSTRUMENTS
Financial instruments of the Bank as included in the consolidated
statements of financial condition for which fair value approximates the carrying
amount at December 31, 1999 and 1998 include "cash and cash equivalents",
"interest receivable", "investment in FHLB stock" and interest payable.
F-36
<PAGE>
BANK PLUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18--QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
FOURTH THIRD SECOND FIRST
YEAR QUARTER QUARTER QUARTER QUARTER
-------------- -------------- -------------- -------------- --------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
1999:
Interest income........................... $ 250,691 $ 54,498 $ 61,130 $ 66,660 $ 68,403
Interest expense.......................... 143,973 30,218 34,574 38,237 40,944
-------------- -------------- -------------- -------------- --------------
Net interest income..................... 106,718 24,280 26,556 28,423 27,459
Provision for estimated loan losses....... 78,800 16,500 17,500 31,800 13,000
-------------- -------------- -------------- -------------- --------------
Net interest income after provision for
estimated loan losses................ 27,918 7,780 9,056 (3,377) 14,459
Noninterest income........................ 49,360 7,823 14,383 12,777 14,377
Operating expense......................... 102,140 24,449 25,832 25,027 26,832
-------------- -------------- -------------- -------------- --------------
(Loss) earnings before income taxes and
minority interest in subsidiary......... (24,862) (8,846) (2,393) (15,627) 2,004
Income tax expense (benefit).............. -- -- -- -- --
Minority interest in subsidiary........... 28 7 7 7 7
-------------- -------------- -------------- -------------- --------------
(Loss) earnings available for common
stockholders............................ $ (24,890) $ (8,853) $ (2,400) $ (15,634) $ 1,997
============== ============== ============== ============== ==============
(Loss) earnings per share:
Basic................................... $ (1.28) $ (0.45) $ (0.12) $ (0.80) $ 0.10
Diluted................................. $ (1.28) $ (0.45) $ (0.12) $ (0.80) $ 0.10
Weighted average common shares outstanding:
Basic................................... 19,460,941 19,463,343 19,463,343 19,461,082 19,455,887
Diluted................................. 19,460,941 19,463,343 19,463,343 19,461,082 19,698,549
Market prices of common stock:
High ................................... $ 6.38 $ 4.25 $ 6.38 $ 6.38 $ 5.13
Low .................................... $ 2.69 $ 2.69 $ 3.13 $ 4.06 $ 3.94
1998:
Interest income........................... $ 300,347 $ 72,161 $ 78,276 $ 75,235 $ 74,675
Interest expense.......................... 209,204 45,591 54,834 55,113 53,666
-------------- -------------- -------------- -------------- --------------
Net interest income..................... 91,143 26,570 23,442 20,122 21,009
Provision for estimated loan losses....... 73,032 15,000 51,782 4,250 2,000
-------------- -------------- -------------- -------------- --------------
Net interest income after provision for
estimated loan losses................ 18,111 11,570 (28,340) 15,872 19,009
Noninterest income........................ 34,418 18,551 4,388 6,148 5,331
Operating expense......................... 104,959 29,016 31,962 23,819 20,162
-------------- -------------- -------------- -------------- --------------
(Loss) earnings before income taxes and
minority interest in subsidiary......... (52,430) 1,105 (55,914) (1,799) 4,178
Income tax expense (benefit).............. 3,870 -- 3,870 (630) 630
Minority interest in subsidiary........... 28 7 7 7 7
-------------- -------------- -------------- -------------- --------------
(Loss) earnings available for
common stockholders..................... $ (56,328) $ 1,098 $ (59,791) $ (1,176) $ 3,541
============== ============== ============== ============== ==============
(Loss) earnings per share:
Basic................................... $ (2.90) $ 0.06 $ (3.08) $ (0.06) $ 0.18
Diluted................................. $ (2.90) $ 0.06 $ (3.08) $ (0.06) $ 0.18
Weighted average common shares outstanding:
Basic................................... 19,395,337 19,430,896 19,395,952 19,385,946 19,369,326
Diluted................................. 19,395,337 19,500,227 19,395,952 19,385,946 19,817,279
Market prices of common stock:
High ................................... $ 16.13 $ 4.94 $ 12.63 $ 16.13 $ 15.63
Low .................................... $ 2.28 $ 2.28 $ 4.13 $ 12.13 $ 11.63
</TABLE>
F-37
<PAGE>
BANK PLUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19--BUSINESS SEGMENT REPORTING
The Company has analyzed overall business and operations, and views its
business as consisting of two reportable business segments; core bank operations
and credit card operations. The financial performance of these business segments
is measured by the Company's profitability reporting processes. The following
describes these two business segments:
CORE BANK OPERATIONS
The principal business activities of this segment are attracting funds from
the general public and other institutions, originating and investing in real
estate related assets, including mortgage loans and MBS, and investment
securities and selling uninsured investment products. This segment's primary
sources of revenue are interest income earned on real estate related assets,
investment securities and funding provided to the credit card operations, fees
earned in connection with loans and deposits and fees earned from the sale of
uninsured investment products. This segment's principal expenses are interest
incurred on interest-bearing liabilities, including deposits and borrowings,
provisions for estimated loan losses, retail branch system costs, mortgage
servicing and origination costs and executive and administrative expenses.
CREDIT CARD OPERATIONS
The principal business activities of this segment are servicing the
outstanding credit card accounts and managing the credit risk associated with
the credit card portfolio. Since the first quarter of 1999, there have been no
material new originations of credit card accounts. This segment's primary
sources of revenue are interest income earned on the credit card balances and
fees earned on credit card accounts, including acceptance and annual fees, late
fees and interchange fees. This segment's principal expenses are interest
expense from funding provided by the core bank operations, provisions for
estimated loan losses and costs of servicing the portfolio, including third
party processing charges.
F-38
<PAGE>
BANK PLUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table shows the net income or loss for the core bank
operations and the credit card operations for the periods indicated. In
computing net interest income, funding costs are charged to the credit card
operations based on a rolling twelve-month average of one-year fixed rate FHLB
advances. All indirect general and administrative expense not specifically
identifiable with either of the two business segments are allocated on the basis
of direct operating expenses. Indirect general and administrative expenses
subject to allocation were $10.5 million and $11.9 million for 1999 and 1998,
respectively, with no corresponding amount in 1997.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1999 1998 1997
-------------- -------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
CORE BANK OPERATIONS:
Net interest income................................. $ 69,931 $ 73,253 $ 79,976
Provision for estimated loan losses (1)............. (14,300) (13,413) 13,004
Noninterest income.................................. 13,753 13,003 3,845
Gain on sale of branches............................ 5,914 -- --
Operating expense................................... 69,101 79,620 63,096
Income tax expense (benefit)........................ -- 3,870 (8,100)
-------------- -------------- --------------
Net earnings (2).................................. $ 34,797 $ 16,179 $ 15,821
============== ============== ==============
Operating Ratios:
Net interest margin............................... 2.26% 1.81% 2.05%
Efficiency ratio.................................. 80.68% 88.33% 67.46%
Return on average assets.......................... 1.09% 0.38% 0.35%
Return on average equity.......................... 37.46% 10.86% 7.43%
Selected Average Balance Sheet Components:
Loans............................................. $ 2,240,849 $ 2,665,050 $ 2,797,556
, Earning assets.................................... 3,108,536 4,057,172 3,545,741
Total assets...................................... 3,192,646 4,204,914 3,633,695
Deposits.......................................... 2,638,472 2,994,618 2,642,560
CREDIT CARD OPERATIONS:
Net interest income................................. $ 36,787 $ 17,890 $ 1,022
Provision for estimated loan losses................. 93,100 86,445 --
Noninterest income.................................. 29,693 21,415 45
Operating expense................................... 33,039 25,339 --
-------------- -------------- --------------
Net loss (2)...................................... $ (59,659) $ (72,479) $ 1,067
============== ============== ==============
Operating Ratios:
Net interest margin............................... 12.95% 8.69% 8.10%
Efficiency ratio.................................. 49.70% 64.47% N/A
Selected Average Balance Sheet Components:
Credit card loans................................. $ 283,435 $ 205,921 $ 12,637
Total assets...................................... 228,688 168,610 12,802
</TABLE>
- ------------------
(1) Negative amounts represent recoveries of previously established allowance
for loan losses.
(2) The segment earnings reported in the table do not include preferred
dividends paid to holders of the preferred stock issued by Fidelity Federal
Bank. These dividends are reported as minority interest in subsidiary in the
consolidated financial statements and were $28,000 in 1999 and 1998 and $4.2
million in 1997.
F-39
<PAGE>
BANK PLUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 20--PARENT COMPANY CONDENSED FINANCIAL INFORMATION
This information should be read in conjunction with the other notes to the
consolidated financial statements.
<TABLE>
BANK PLUS CORPORATION
STATEMENTS OF FINANCIAL CONDITION
<CAPTION>
DECEMBER 31,
--------------------------
1999 1998
------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS:
Cash and cash equivalents............................................. $ 649 $ 719
Loans receivable...................................................... 159 445
Investment in Preferred Stock of subsidiary........................... 51,478 51,478
Investment in subsidiaries............................................ 105,311 129,661
Other assets.......................................................... 418 251
------------ ------------
Total Assets............................................................. $ 158,015 $ 182,554
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Liabilities:
Senior Notes........................................................ $ 51,478 $ 51,478
Other liabilities................................................... 1,089 893
------------ ------------
Total Liabilities................................................ 52,567 52,371
Stockholders' equity.................................................. 105,448 130,183
------------ ------------
Total Liabilities and Stockholders' Equity............................... $ 158,015 $ 182,554
============ ============
</TABLE>
F-40
<PAGE>
BANK PLUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
BANK PLUS CORPORATION
STATEMENTS OF OPERATIONS
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1999 1998 1997
-------------- -------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
INCOME:
Interest income.................................... $ 20 $ 32 $ 49
Interest expense................................... 6,207 6,199 2,782
-------------- -------------- --------------
Net interest (expense) income......................... (6,187) (6,167) (2,733)
-------------- -------------- --------------
OPERATING EXPENSE:
Personnel and benefits............................. 59 3 --
Occupancy 268 150 257
Professional services.............................. 738 187 219
Intercompany expense allocation.................... 393 359 271
Write-off of investment............................ -- 558 --
Other.............................................. 218 49 93
-------------- -------------- --------------
Total operating expense.......................... 1,676 1,306 840
-------------- -------------- --------------
Loss before income taxes.............................. (7,863) (7,473) (3,573)
Income tax expense (benefit).......................... (1,458) 180 (384)
-------------- -------------- --------------
Loss before equity in undistributed (loss)
earnings and minority interest of subsidiaries..... (6,405) (7,653) (3,189)
Equity in undistributed net (loss) earnings
of subsidiaries.................................... (18,457) (48,647) 20,077
Minority interest in subsidiary....................... (28) (28) (4,235)
-------------- -------------- --------------
Net (loss) earnings................................... $ (24,890) $ (56,328) $ 12,653
============== ============== ==============
</TABLE>
F-41
<PAGE>
BANK PLUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
BANK PLUS CORPORATION
STATEMENTS OF CASH FLOWS
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1999 1998 1997
-------------- -------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) earnings..................................... $ (24,890) $ (56,328) $ 12,653
Equity in undistributed net loss
(earnings) of subsidiaries............................ 18,457 48,647 (20,077)
Minority interest in subsidiary......................... 28 28 4,235
Amortization of exchange offer.......................... 29 22 22
Other assets (increase) decrease........................ (126) 234 (417)
Senior Notes interest payable, increase................. -- -- 790
Other liabilities (decrease) increase................... (240) (39) 12
-------------- -------------- --------------
Net cash used in operating activities................. (6,742) (7,436) (2,782)
-------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in Bank Plus Credit Services Corporation..... 2,226 (4,500) --
Investment in FFB....................................... (2,200) -- --
Loans receivable decrease............................... 444 120 144
-------------- -------------- --------------
Net cash provided by (used in) investment
activities.......................................... 470 (4,380) 144
-------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends from subsidiaries............................. 6,189 11,322 2,290
Proceeds from exercise of stock options................. 13 239 530
-------------- -------------- --------------
Net cash provided by financing activities............. 6,202 11,561 2,820
-------------- -------------- --------------
Net (decrease) increase in cash and cash equivalents....... (70) (255) 182
Cash and cash equivalents at beginning of period........... 719 974 792
-------------- -------------- --------------
Cash and cash equivalents at the end of period............. $ 649 $ 719 $ 974
============== ============== ==============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Exchange of Preferred Stock for Senior Notes............ $ -- $ -- $ 51,478
Stock award and restricted stock issued................. $ 142 $ -- $ --
Bank Plus Credit Services dissolution and
contribution to Fidelity.............................. $ 3,612 $ -- $ --
</TABLE>
NOTE 21--SUBSEQUENT EVENTS
Fidelity has signed definitive agreements with two separate institutions to
sell a total of five of Fidelity's branch offices with approximately $350
million in deposits. The Company expects to fund the deposit sales with
approximately $250 million in multifamily loans and the remainder in cash. The
Bank has received approval from the OTS for these transactions. The Bank
anticipates that these transactions will be completed in the first and second
quarters of 2000.
On March 23, 2000 First Alliance Corporation and its subsidiaries
(collectively "FACO"), the marketer of the real estate secured credit card
program, announced that they had filed voluntary petitions under Chapter 11 of
the United States Bankruptcy Code. Under the Bank's credit card program
agreement with FACO, FACO was (1) obligated to repurchase credit card accounts
F-42
<PAGE>
BANK PLUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
when they became over 120 days delinquent and (2) upon termination of the
program, FACO or its designee was obligated to purchase all of the outstanding
accounts under the program. The term of the program agreements expired on
February 24, 2000 and the Bank made a demand upon FACO to purchase all of the
outstanding accounts of the program. It is uncertain what effect the filing of
the petition for bankruptcy will have on FACO's obligations under the program
agreements. If FACO does not perform its obligations under the agreement, the
Company may be required to record a loss to the extent that estimated
charge-offs exceed the cash reserves held by the Company. As of February 29,
2000, the balance of accounts and related cash reserves of this program were
$16.4 million and $2.7 million, respectively.
F-43
1999 NONEMPLOYEE DIRECTOR STOCK OPTION AGREEMENT
AGREEMENT made as of the 29th day of April, 1999 between Bank Plus
Corporation, a Delaware corporation (the "Company"), and
[Name of Nonemployee Director] (the "Optionee"), a nonemployee director of the
Company or its wholly-owned subsidiary, Fidelity Federal Bank, a Federal Savings
Bank ("Fidelity").
WITNESSETH:
WHEREAS, the Bank Plus Corporation Stock Option and Equity
Incentive Plan, as amended (the "Plan"), a copy of which is attached hereto as
Exhibit A and the terms of which are incorporated herein by reference, provides
for annual awards of stock options to be made to the nonemployee directors of
the Company and Fidelity on the first business day after the date of the annual
meeting of the Company's stockholders.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants hereinafter set forth and other good and valuable consideration, the
Company and the Optionee agree as follows:
1. Subject to the terms and conditions of this Agreement and the Plan,
the Company hereby grants to the Optionee the option (the "Option") to purchase,
from time to time, all or a part of 2,500 shares (the "Option Shares") of the
Company's common stock ($0.01 par value) (the "Common Stock"). The Option is
fully vested, and shall expire at the close of business on April 28, 2009,
unless sooner terminated pursuant to sections 3 or 4 of this Agreement. The
Option is exercisable at a purchase price of $4.84375 per Option Share.
2. The Option is not transferable by the Optionee otherwise than by
will or the laws of descent and distribution, and is exercisable, during the
Optionee's lifetime, only by the Optionee.
3. In the event that the Optionee shall cease to serve on the board of
directors of the Company and/or Fidelity for any reason other than removal for
cause, the Optionee may exercise the Option at any time within 90 days following
such cessation, but not later than the date of expiration of the Option,
whichever shall first occur. In the event of the removal of the Optionee from
the board of directors of the Company and/or Fidelity for cause, the Option
shall be cancelled as of the effective date of such removal.
4. In the event the Optionee dies while serving as a nonemployee
director of the Company and/or Fidelity, the person or persons to whom the
Option is transferred by will or the laws of descent and distribution may
exercise the Option at any time within one year from the date of death, but no
later than the date of expiration of the Option, whichever shall first occur.
<PAGE>
5. The Option may be exercised only by written notice to the Secretary
of the Company at its office at 4565 Colorado Boulevard, Los Angeles, California
90039. Such notice shall state the election to exercise the Option under the
1999 Nonemployee Director Stock Option Agreement and the number of shares in
respect of which it is being exercised and shall be signed by the Optionee. In
no event may the Option be exercised for less than 500 shares unless there are
fewer than 500 shares remaining for exercise under the Option. The certificate
or certificates of the shares as to which the Option shall have been exercised
will be registered only in the Optionee's name. In the event the Option becomes
exercisable by another person or persons upon the death of the Optionee, the
notice of exercise shall be accompanied by appropriate proof of the right to
exercise the Option.
6. At the time of exercise of the Option and prior to the delivery of
such shares, the Optionee shall pay in cash to the Company the sum of the
aggregate option price of all shares purchased pursuant to such exercise of the
Option. All payments shall be made in cash or by check payable to the order of
the Company. The Optionee shall not have any of the rights and privileges of a
stockholder of the Company with respect to the shares deliverable upon any
exercise of the Option unless and until certificates representing such shares
shall have been delivered to the Optionee.
7. The Optionee agrees that any resale of the shares received upon any
exercise of the Option shall be made in compliance with the registration
requirements of the Securities Act of 1933 or an applicable exemption therefrom,
including without limitation the exemption provided by Rule 144 promulgated
thereunder (or any successor rule).
8. In the event that, prior to the exercise of the Option with respect
to all of the shares of Common Stock in respect of which the Option is granted,
the number of outstanding shares of Common Stock shall be increased or decreased
or changed into or exchanged for a different number or kind of shares of stock
or other securities of the Company, whether through stock dividend, stock split,
reverse stock split, recapitalization or other change affecting the outstanding
Common Stock, the remaining number of shares of Common Stock still subject to
the Option and the purchase price thereof shall be appropriately adjusted by the
committee appointed by the Board of Directors to administer the Plan (the
"Committee") as provided in Section 3 of the Plan.
9. The Committee shall have authority to interpret the Plan and this
Agreement and to make any and all determinations under them, and its decisions
shall be binding and conclusive upon the Optionee and the Optionee's legal
representative in respect of any questions arising under the Plan or this
Agreement.
10. Any notice to be given to the Company shall be addressed to the
Secretary of the Company at 4565 Colorado Boulevard, Los Angeles, California
90039 and any notice to be given to the Optionee shall be addressed to the
Optionee at the Optionee's residence as it may appear on the records of the
Company or at such other address as either party may hereafter designate in
writing to the other.
2
<PAGE>
11. This Agreement shall be binding upon and inure to the benefit of
the parties hereto and any successors to the business of the Company and any
successors to the Optionee by will or the laws of descent and distribution, but
this Agreement shall not otherwise be assignable by the Optionee.
12. This Agreement shall be governed by, and construed in accordance
with, the laws of the State of California and applicable federal law.
IN WITNESS WHEREOF, this Agreement has been executed by the parties
hereto as of the date and year first above written.
BANK PLUS CORPORATION
By /S/ MARK MASON
-------------------------------------
MARK MASON
President and Chief Executive Officer
-------------------------------------
[Name of Nonemployee Director]
3
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (the "AGREEMENT") is made and entered into
as of the "Date of Grant" specified below by and between BANK PLUS CORPORATION,
a Delaware corporation (the "COMPANY"), and person specified below as the
"Optionee," an employee of the Company or its wholly-owned subsidiary, Fidelity
Federal Bank, A Federal Savings Bank ("FIDELITY").
WITNESSETH
----------
WHEREAS, the Company maintains the Bank Plus Corporation Stock Option
and Equity Incentive Plan, as amended (the "PLAN"), a copy of which is attached
hereto as Exhibit A and the terms of which are incorporated herein by reference;
and
WHEREAS, the Plan is administered by a committee (the "COMMITTEE")
appointed by the Board of Directors of the Company as provided in Section 3 of
the Plan; and
WHEREAS, the Committee has determined that the Optionee shall be
granted the option hereinafter set forth upon the terms and conditions
hereinafter contained.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants hereinafter set forth and other good and valuable consideration, the
Company and the Optionee agree as follows:
AGREEMENT
---------
1. Subject to the terms and conditions of this Agreement and the Plan,
and subject to the surrender and cancellation of all stock options previously
granted to the Optionee under the Plan, the Company hereby grants to the
Optionee the option (the "OPTION") to purchase, from time to time, all or a
portion of the number of shares specified below (the "OPTION SHARES") of the
Company's common stock, par value $0.01 per share (the "COMMON STOCK"), at the
purchase price per Option Share specified below (the "EXERCISE PRICE"). The
Option shall expire at the time and on the expiration date specified below
("EXPIRATION DATE"), unless sooner terminated pursuant to Sections 3 or 4 of
this Agreement.
OPTIONEE: JAMES E. STUTZ
DATE OF GRANT: JULY 28, 1999
OPTION SHARES: 250,000
EXERCISE PRICE: $6.00
EXPIRATION DATE: 5:00 P.M. (LOS ANGELES TIME)
ON JULY 27, 2009
<PAGE>
The Option shall be exercisable for Option Shares only on the terms specified
below:
(a) The Option shall vest and become exercisable for a
cumulative percentage (the "VESTED PERCENTAGE") of the original number of Option
Shares when the Average Share Price (as defined below) reaches specified prices.
As used herein, the "AVERAGE SHARE PRICE" shall mean the average of the closing
prices per share of Common Stock on the Nasdaq Stock Market ("NASDAQ") (or other
stock exchange on which the Common Stock then trades) for any twenty (20)
consecutive trading days on such market or exchange. The following table sets
forth the Vested Percentage attributable each of certain specified Average Share
Prices:
AVERAGE SHARE PRICE VESTED PERCENTAGE
$ 4.00 10%
5.00 25%
6.00 40%
7.00 55%
8.00 70%
9.00 85%
10.00 100%
(b) Notwithstanding Section 1(a), the Option shall become
immediately exercisable in its entirety for all Option Shares upon the earlier
of (i) the date a "CHANGE IN CONTROL" (as defined in the Plan) occurs and (ii)
July 28, 2006.
2. The Option is intended to qualify as an incentive stock option under
Section 422 of the Internal Revenue Code of 1986 (the "CODE"); PROVIDED,
HOWEVER, that if, in any calendar year, vesting were to occur under the terms of
Section 1 hereof with respect to a number of Option Shares exceeding the maximum
limit imposed by the Code for annual vesting of incentive stock options, then
this Option shall only be deemed an incentive stock option with respect to the
earliest Option Shares to vest in such year in the amount of such maximum limit,
and this Option shall be deemed to be a be non-qualified stock option with
respect to the remaining shares that vest in such year. In such event, upon each
subsequent exercise of this Option, the Optionee shall designate in writing to
the Company which, if any, of the Option Shares being acquired were subject to
an incentive stock option and which were subject to a non-qualified stock
option.
3. If Nasdaq threatens any sanctions against the Company attributable
to this Agreement or the number of Option Shares hereunder, the Company and the
Optionee agree to restructure the Optionee's compensation package to eliminate
Nasdaq's objection and yet retain the equivalent economic benefit to the
Optionee.
2
<PAGE>
4. The Option is not transferable by the Optionee otherwise than by
will or the laws of descent and distribution, and is exercisable, during the
Optionee's lifetime, only by the Optionee.
5. In the event of the termination of the employment of the Optionee
with the Company or Fidelity for any reason other than Cause (as defined below),
the Optionee may exercise the Option, to the extent that the Optionee was
entitled to do so on the date of termination, at any time until the earlier of
(i) the close of business on the 90th day following the effective date of such
termination or (ii) the date of expiration of the Option. In the event of the
termination of employment of the Optionee for Cause, the Option shall be
canceled as of the effective date of such termination. For purposes of this
Section, "CAUSE" shall mean the continued failure, either willful or due to
gross negligence, of the Optionee to substantially perform his/her duties as an
employee of the Company or its subsidiaries in a faithful and competent manner;
dishonesty; incompetence; willful misconduct; breach of fiduciary duty involving
personal profit; willful violation of any law, rule or regulation (other than
traffic violations or similar violations) or final cease-and-desist order,
PROVIDED, HOWEVER, that if the Optionee is subject to an employment agreement
with the Company or Fidelity, "Cause" shall have the meaning set forth in such
employment agreement.
6. In the event the Optionee dies while employed by the Company or
Fidelity, the person or persons to whom the Option is transferred by will or the
laws of descent and distribution may exercise the Option, to the extent that the
Optionee was entitled to do so on the date of the Optionee's death, at any time
until the earlier of (i) the first anniversary of the date of death or (ii) the
date of expiration of the Option.
7. The Option may be exercised only by written notice to the Secretary
of the Company at its office at 4565 Colorado Boulevard, Los Angeles, California
90039. Such notice shall state the election to exercise the Option and the
number of Option Shares in respect of which it is being exercised and shall be
signed by the Optionee. In no event may the Option be exercised for less than
500 Option Shares unless there are fewer than 500 Option Shares remaining for
exercise under the Option. The certificate or certificates of the Option Shares
as to which the Option shall have been exercised will be registered only in the
Optionee's name. In the event the Option becomes exercisable by another person
or persons upon the death of the Optionee, the notice of exercise shall be
accompanied by appropriate proof of the right to exercise the Option.
8. At the time of exercise of the Option and prior to the delivery of
the purchased Option Shares, the Optionee shall pay in cash to the Company the
sum of the aggregate purchase price for all Option Shares purchased pursuant to
such exercise of the Option and any Withholding Liability pursuant to Section 11
hereof. All payments shall be made by check payable to the order of the Company.
In lieu of making payment in cash for the aggregate purchase price for all
Option Shares purchased pursuant to the exercise of the Option or any
Withholding Liability, the Optionee may, if the Common Stock is actively traded
on an established market, make such payment (i) by delivery to the Company of
shares of Common Stock owned by the Optionee having a fair market value of at
least equal to the aggregate purchase price for the Option Shares, (ii) partly
3
<PAGE>
in cash and partly by delivery of shares of Common Stock or (iii) such other
method permitted by the Committee so long as such method complies with the
applicable provisions of the Code for incentive stock options. The fair market
value shall be established in accordance with any reasonable valuation methods
determined by the Committee. If the fair market value of the shares of Common
Stock so delivered exceeds the aggregate purchase price for the Option Shares
(or part thereof) and such Withholding Liability, the Company will pay to the
Optionee in cash an amount equal to the fair market value of the fractional
portion of any share of Common Stock so delivered and not applied by the Company
in payment of the purchase price and such Withholding Liability and a
certificate for any whole shares of Common Stock not required to be applied by
the Company in payment of the purchase price and such Withholding Liability. The
Optionee shall not have any of the rights and privileges of a stockholder of the
Company with respect to the Option Shares deliverable upon any exercise of the
Option unless and until certificates representing such shares shall have been
delivered to the Optionee.
9. The Optionee agrees that any resale of the shares received upon any
exercise of the Option shall be made in compliance with the registration
requirements of the Securities Act of 1933 or an applicable exemption therefrom,
including without limitation the exemption provided by Rule 144 promulgated
thereunder (or any successor rule). The Optionee agrees that the Optionee will
give notice to the Company of any "disposition" (within the meaning of Section
424(c) of the Code) of the shares received upon exercise of the Option which is
made within the two-year period beginning on the Date of Grant or within the
one-year period beginning on the date of the issuance of such shares to the
Optionee. Such notice shall be given in writing within ten days after such
disposition and shall contain a representation by the Optionee of the net amount
realized by the Optionee from the disposition, or, if no amount is realized, a
representation as to the nature of the disposition.
10. In the event that, prior to the exercise of the Option with respect
to all of the Option Shares, the number of outstanding shares of Common Stock
shall be increased or decreased or changed into or exchanged for a different
number or kind of shares of stock or other securities through a merger,
consolidation, stock dividend, stock split, reverse stock split,
recapitalization or other capital restructuring affecting the outstanding Common
Stock, the number and nature of unpurchased Option Shares hereunder, the
Exercise Price, and the Average Share Price for each Vested Percentage shall be
appropriately adjusted by the Committee.
11. If the Company or any affiliate of the Company becomes obligated to
withhold an amount on account of any tax imposed as a result of the exercise of
this Option, including, without limitation, any federal, state, local or other
income tax, or any F.I.C.A., state disability insurance tax or other employment
tax (the "WITHHOLDING LIABILITY"), then the Optionee shall, on the date of
exercise and as a condition to the issuance of the Option Shares, pay the
Withholding Liability to the Company in cash or by check payable to the Company.
The Optionee hereby consents to the Company withholding the full amount of the
Withholding Liability from any compensation or other amounts otherwise payable
to the Optionee if the Optionee does not pay the Withholding Liability to the
Company on the date of exercise of the Option, and the Optionee agrees that the
withholding and payment of any such amount by the Company to the relevant taxing
authority shall constitute full satisfaction of the Company's obligation to pay
such compensation or other amounts to the Optionee.
4
<PAGE>
12. If any of the terms of this Agreement are inconsistent with the
terms of the Plan, the terms of the Plan shall be controlling. The Committee
shall have authority to interpret the Plan and this Agreement and to make any
and all determinations under them, and its decisions shall be binding and
conclusive upon the Optionee and the Optionee's legal representative in respect
of any questions arising under the Plan or this Agreement.
13. Any notice to be given to the Company shall be addressed to the
Secretary of the Company at 4565 Colorado Boulevard, Los Angeles, California
90039 and any notice to be given to the Optionee shall be addressed to the
Optionee at the Optionee's residence as it may appear on the records of the
Company or at such other address as either party may hereafter designate in
writing to the other.
14. The Agreement shall be binding upon and inure to the benefit of the
parties hereto and any successors to the business of the Company and any
successors to the Optionee by will or the laws of descent and distribution, but
this Agreement shall not otherwise be assignable by the Optionee.
15. This Agreement shall be governed by, and construed in accordance
with, the internal laws, and not the laws of conflicts or choice of law, of the
State of California and applicable Federal law.
16. The Optionee hereby agrees and consents to the surrender and
cancellation of all stock options previously granted to him under the Plan.
IN WITNESS WHEREOF, this Agreement has been executed by the parties
hereto as of the date and year first above written.
BANK PLUS CORPORATION
By /S/ MARK MASON
-------------------------------------
MARK MASON
Chief Executive Officer
/S/ James E. Stutz
-------------------------------------
James E. Stutz
5
SERVICE AGREEMENT
DATED OCTOBER 14, 1999
BETWEEN
FIRST DATA RESOURCES INC.
AND
FIDELITY FEDERAL BANK,
A FEDERAL SAVINGS BANK
<PAGE>
TABLE OF CONTENTS
-----------------
PAGE
ARTICLE 1 DEFINITIONS AND INTERPRETATION.....................................1
ARTICLE 2 SERVICES...........................................................1
ARTICLE 3 EXCLUSIVITY, ACQUIRED PORTFOLIOS AND MERGER OR
CHANGE OF CONTROL..................................................6
ARTICLE 4 PAYMENT FOR SERVICES...............................................8
ARTICLE 5 DISPUTE RESOLUTION AND INDEMNIFICATION............................10
ARTICLE 6 LIMITATION OF LIABILITY...........................................11
ARTICLE 7 DISCLAIMER OF WARRANTIES..........................................12
ARTICLE 8 TERM OF AGREEMENT.................................................12
ARTICLE 9 TERMINATION.......................................................12
ARTICLE 10 CONFIDENTIAL NATURE OF DATA.......................................15
ARTICLE 11 REPRESENTATIONS...................................................17
ARTICLE 12 INTERCHANGE SETTLEMENT............................................17
ARTICLE 13 MISCELLANEOUS.....................................................17
EXHIBITS
--------
EXHIBIT A SERVICES/PRICING
EXHIBIT B AFFILIATE AGREEMENT
EXHIBIT C DEFINITIONS
EXHIBIT D ARBITRATION
EXHIBIT E INDEMNIFICATION
EXHIBIT F INTERCHANGE SETTLEMENT
EXHIBIT G PERFORMANCE GUIDELINES
i
<PAGE>
SERVICE AGREEMENT
This Service Agreement dated as of October 14, 1999, is between First Data
Resources Inc. ("FDR") and Fidelity Federal Bank, a Federal Savings Bank
("Customer"). References to "Customer" throughout shall include Customer's
Transaction Card Affiliates.
RECITALS
WHEREAS, FDR currently provides to Customer and Customer currently receives
from and pays FDR for, data processing and other related services in connection
with Customer's Accounts as a bank member of Card Management Corporation ("CMC")
pursuant to a Service Agreement between CMC and FDR dated January 22, 1996, as
amended (the "CMC Agreement"); and
WHEREAS, Customer and FDR mutually desire to discontinue
receiving/providing data processing and related services for Customer's Accounts
pursuant to the CMC Agreement as of November 1, 1999, and to commence to
receive/provide such services pursuant to a direct servicing agreement between
Customer and FDR; and
WHEREAS, FDR and Customer wish to enter into such a direct servicing
agreement for the provision of data processing and related services by FDR in
connection with Customer's Accounts;
NOW THEREFORE, FDR and Customer agree as follows:
ARTICLE 1
DEFINITIONS AND INTERPRETATIONARTICLE 1 DEFINITIONS AND INTERPRETATION
----------------------------------------------------------------------
1.1 DEFINITIONS. Unless the context otherwise requires, capitalized terms
used herein shall have the meanings specified in Exhibit C.
1.2 INTERPRETATION. Each definition in this Agreement includes the singular
and the plural and the word "including" means "including but not limited to".
References to any statute or regulation means such statute or regulation as
amended at the time and includes any successor statute or regulation. The
section headings in this Agreement are solely for convenience and shall not be
considered in its interpretation. The Exhibits referred to throughout this
Agreement are attached hereto and are incorporated herein. Whenever this
Agreement confers discretion or sole discretion on a party, such discretion
shall be exercised reasonably and in good faith.
ARTICLE 2
SERVICES
--------
2.1 SERVICES. FDR shall make available to and perform for Customer those
services described in Exhibit A which are applicable to Customer's Accounts or
as specifically provided in Exhibit A (the "Services"). Exhibit A and any
1
<PAGE>
document or service referred to in Exhibit A shall be subject to periodic
revision by FDR to reflect changes (i) to the FDR System or the services
provided by FDR and offered generally to FDR customers and (ii) in the specific
Services provided to Customer.
2.2 COMMUNICATION LINKS. FDR periodically shall install, provide or cause
to be installed or provided the means for communicating data from its facilities
or equipment to the facilities or equipment of Customer, and third parties
designated by Customer, as FDR determines is desirable to perform this
Agreement. The method of transmission and the media employed will be determined
by FDR taking into consideration relevant factors such as traffic type, inbound
and outbound message sizes, traffic loading distribution, and the equipment or
devices which are or may be used.
2.3 ENHANCEMENTS. Customer may periodically request customizations,
enhancements, additions or modifications (each an "Enhancement") to the FDR
System. FDR shall evaluate all such requests and, if terms and conditions can be
agreed to (which shall include payment by Customer of FDR's development
charges), FDR shall develop and implement each such Enhancement on terms and
conditions agreed to by the parties. Timing of any Enhancement is subject to
scheduling and prioritization by FDR of FDR's available resources. FDR may
withhold its consent to an Enhancement which, in FDR's sole discretion, would
materially and adversely affect FDR's operations. Any Enhancement shall remain
solely the property of FDR and Customer shall acquire no right, claim or
interest in the FDR System.
2.4 TRANSFER.
(a) Not later than October 31, 1999, FDR shall perform a Client
Billing Redirect of the Cardholder Accounts of Customer within the FDR System
from the current system/principal bank levels related to CMC processing to
system/principal bank levels designated solely for Customer (the "Transfer").
(b) In connection with the Transfer, Customer shall pay FDR the
Transfer Fee as set forth in Exhibit A.
(c) FDR will, at Customer's expense, provide training to Customer's
personnel in connection with the Transfer.
2.5 COMPLIANCE WITH LAW.
(a) FDR and Customer acknowledge that Customer is subject to a variety
of federal, state and local laws, regulations and judicial and administrative
decisions and interpretations applicable to its Transaction Card business,
including without limitation those pertaining to equal credit opportunity, truth
in lending, fair credit billing, fair credit reporting, fair debt collection
practices and general consumer protection (the "Legal Requirements"). The
parties shall cooperate with each other in resolving issues relating to
compliance with the Legal Requirements in accordance with the provisions of this
Section 2.5.
2
<PAGE>
(b) Customer is solely responsible for (i) monitoring and interpreting
the Legal Requirements, (ii) determining the particular actions, disclosures,
formulas, calculations and procedures required for compliance with the Legal
Requirements (whether to be performed by FDR or by Customer) and (iii)
maintaining an ongoing program for compliance with the Legal Requirements. In
addition, Customer is solely responsible for reviewing and selecting the
parameter settings and programming features and options within the FDR System
that will apply to Customer's Transaction Card programs, and for determining
that its selection of such settings, features and options is consistent with the
Legal Requirements and with the terms and conditions of Customer's Accounts and
disclosures to its Cardholders. In making such determinations, Customer may rely
on the written description of such settings, features and options in the User
Manuals, customer bulletins and other system documentation provided by FDR to
Customer.
(c) Customer will notify FDR if Customer believes that pending changes
in applicable Legal Requirements will require changes in FDR's delivery of the
Services. The notice will specify in reasonable detail Customer's basis for its
position, together with the specific requirements Customer deems necessary for
it to be in compliance with the Legal Requirements. Upon such notice, FDR will
use commercially reasonable efforts to develop enhancements to the FDR System or
to the Services to accommodate the response desired by Customer, considering
whether (i) each specified Legal Requirement is generally applicable to a
significant portion of FDR's client base, (ii) the enhancement requested by
Customer is consistent with that requested by the majority of FDR's customers
subject to the same Legal Requirement, and (iii) the enhancement will require
substantial rearchitecture of the FDR System. FDR will have a reasonable time in
which to design, code, test and implement any system enhancement, considering
the FDR System, its importance or urgency relative to other requested
enhancements and other issues related to resource allocation and technical
feasibility. If FDR is unable to design, code, test and implement such an
enhancement by the effective date of a change in Legal Requirements, FDR will
use its best efforts to assist Customer in developing a temporary work-around
solution pending implementation of the enhancement. Enhancements developed and
implemented by FDR pursuant to this section will be at the shared expense of
Customer and any other customers requesting such enhancements. Work-arounds will
be at Customer's expense.
(d) FDR is solely responsible for compliance with all laws,
regulations and judicial and administrative decisions applicable to FDR as a
third party provider of data processing services. FDR will not be responsible
for any violation by Customer of a Legal Requirement to the extent such
violation occurs as a result of performance by FDR of the Services in accordance
with the instructions of Customer or written procedures provided by or approved
by Customer.
(e) Subject to the terms of Article 10, FDR and Customer shall
cooperate with each other in providing information or records in connection with
examinations, requests or proceedings of each other's regulatory authorities.
3
<PAGE>
2.6 DEPENDENCE ON PERFORMANCE BY OTHERS. The obligation of FDR to timely
perform the Services is expressly subject to the timely performance by Customer,
and third party vendors Customer engages, of their obligations and
responsibilities, but only to the extent that failure to so perform directly
affects FDR's ability to timely perform hereunder or the cost to FDR of
performing hereunder.
2.7 YEAR 2000 COMPLIANT.
(a) For purposes of this Agreement, "Year 2000 Compliant" means:
(i) date data (including the leap year date) will process without
error or interruption due solely to the change in century, in
any level of computer hardware or software FDR provides,
including, but not limited to, microcode, firmware, system and
application programs, files and databases; and
(ii) there will be no loss of any functionality of the FDR System
due solely to the change in century, with respect to the
introduction, processing or output of date records.
(b) FDR represents and warrants that:
(i) The FDR System is Year 2000 Compliant as of the date of this
Agreement; provided, however, that FDR will be in a process
of testing the FDR System in regard to Year 2000 Compliance
throughout calendar year 1999 and any temporary and
immaterial loss of functionality occurring during the
ordinary course of this testing and fixing process shall not
be considered a failure of FDR to be Year 2000 Compliant.
(ii) The FDR System will continue to be interoperable, in the same
manner as it is prior to January 1, 2000, with software and
hardware which may deliver records to, receive records from
or interact with the FDR System in the course of processing
data, provided that such other software and hardware is Year
2000 Compliant as defined herein and complies with the
interface and format standards specified by FDR.
(c) Customer agrees to cooperate fully, and to ensure that its vendors
cooperate fully, with FDR to ensure the interoperability of the FDR System with
hardware and software of the Customer and its vendors. FDR shall have the right,
at its discretion, to reject any data file which it in good faith believes will
interfere with the ability of the FDR System to be Year 2000 Compliant.
(d) Customer agrees to provide adequate resources necessary to
properly test Year 2000 Compliance after the transfer to a direct processing
relationship with FDR.
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2.8 OTHER SERVICES. In addition to the Services to be provided to Customer,
Customer agrees to rely upon FDR as its primary source for all other existing
and future processing requirements of Customer and its Affiliates with respect
to Customer credit card products unless a third party is capable of performing
or providing such services, products or resources with at least substantially
comparable quality, functionality and features compared to FDR and upon such
terms and conditions and at such prices that are, in the aggregate, materially
more favorable to Customer or its Affiliate. The terms of any arrangements under
which other services or other products are provided pursuant to this Section 2.8
are subject to the mutual agreement of the parties.
2.9 EXECUTION BY AFFILIATES. If any of Customer's Issuer Affiliates or
Customer's Merchant Affiliates elect to receive any of the Services, each such
Customer's Issuer Affiliate and Customer's Merchant Affiliate shall be required
to execute an Affiliate Agreement in substantially the form of Exhibit B hereto.
In no event shall FDR be required to perform any of the Services for any such
Customer's Issuer Affiliate or Customer's Merchant Affiliates prior to the
execution of an Affiliate Agreement by such Customer's Issuer Affiliate and
Customer's Merchant Affiliate.
2.10 PERFORMANCE GUIDELINES.
(a) FDR's Performance. During the Term of this Agreement, FDR shall at
all times maintain the necessary communication lines, computer
capacity and staff necessary to perform the Services in accordance
with the performance guidelines set forth in Exhibit G (the
"Performance Guidelines").
(b) Remedies for Failed Performance.
(i) If, during any calendar month, FDR fails six (6) or more of
the Performance Guidelines, then such failure shall be considered
a "Failed Month" for purposes of this Section 2.10(b).
(ii) If FDR has three (3) or more consecutive Failed Months,
Customer may, at its option and upon prior written notice to FDR,
initiate a cure period during which FDR shall use all reasonable
efforts to cure the failed Performance Guidelines (the "Cure
Period"), which Cure Period shall remain in effect for three (3)
calendar months from the date of such notice.
(iii) If, during the Cure Period, FDR has a Failed Month, then
Customer may, at its option, elect to terminate this Agreement
upon providing FDR written notice of such intention to terminate.
Such termination shall become effective on a date specified by
Customer, which date shall not be later than twelve (12) calendar
months after Customer's delivery to FDR of written notice of its
intention to so terminate, provided that FDR will be given a
minimum of one hundred eighty (180) days to perform the
Deconversion.
(iv) In the event FDR does not have a Failed Month during the Cure
Period, then Customer may not initiate another Cure Period unless
and until FDR has another three (3) consecutive Failed Months, as
set forth above.
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(v) Anything in this Section 2.10 to the contrary notwithstanding,
in no event shall the provisions of this Section 2.10 be effective
until a date ninety (90) days following the date of the Transfer.
2.11 (c) SOLE REMEDY. Customer hereby agrees that due to the difficulty of
determining and calculating its damages upon FDR's failure to perform in
accordance with the Performance Guidelines, the remedy of termination set forth
in Section 2.10(b)(iii) upon such FDR failure is its sole and exclusive remedy
and that Customer hereby elects to waive any and all other remedies to which
Customer may be entitled under this Agreement, at law or in equity, based upon
FDR's failure to perform in accordance with the Performance Guidelines;
provided, however, that nothing in this paragraph shall be construed to mean
Customer is waiving any remedy to which it may be entitled under this Agreement
(including but not limited to those set forth in Exhibit E of this Agreement
(Indemnification)) if the basis for its cause of action against FDR is based
upon anything other than solely upon nonperformance in accordance with the
Performance Guidelines.
2.12 INSURANCE. During the Term, FDR shall maintain such insurance coverage
as is customary in the industry.
ARTICLE 3
EXCLUSIVITY, ACQUIRED PORTFOLIOS AND MERGER OR CHANGE OF CONTROL
----------------------------------------------------------------
3.1 SOLE AND EXCLUSIVE PROVIDER. During the Term, FDR shall be the sole and
exclusive provider to Customer of all Services and Customer shall neither
perform or provide any Services for itself nor engage any third party to perform
or provide any such Services to Customer. Notwithstanding the foregoing, the
parties hereby agree that those Cardholder Accounts of Customer related to
Customer's FAMCO real estate secured credit card portfolio shall not be bound by
the obligations set forth in this Section 3.1 until such time, if any, that such
Cardholder Accounts are converted onto the FDR System.
3.2 ACQUIRED FDR PORTFOLIOS. If Customer or any of its Affiliates
("Purchaser") Acquires any Customer Accounts for which FDR is then providing
services similar to the Services (an "FDR Portfolio"), FDR shall continue to
perform the services pursuant to the pre-existing service agreement (the
"Existing FDR Agreement") which shall remain in effect through the expiration of
its then-current term. On the expiration of the Existing FDR Agreement and
transfer of the FDR Portfolio to Customer on the FDR System, the FDR Portfolio
shall be processed in accordance with the terms of this Agreement. FDR shall not
include the volumes from the FDR Portfolio in any volume based price schedules
set forth in Exhibit A until such time as the Existing FDR Agreement expires and
there is a transfer of the FDR Portfolio to Customer on the FDR System. Such
transfer of the FDR Portfolio shall occur on a mutually agreed upon date. In
connection with such transfer, Customer shall bear the costs and expenses of
such transfer, at the then-standard hourly rates of FDR plus related material
charges.
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3.3 ACQUIRED NON-FDR PORTFOLIOS.
(a) If Purchaser Acquires any Customer Accounts that require services
substantially similar to the Services but for which FDR is not then providing
such services (a "Non-FDR Portfolio"), Customer shall use its reasonable best
efforts to convert such Non-FDR Portfolio to the FDR System within six (6)
months after the closing of the Acquisition or, if Customer is bound by the
terms of an existing agreement to obtain processing services for such portfolio
(an "Existing Non-FDR Agreement"), upon the expiration of the then-remaining
term of the Existing Non-FDR Agreement, whichever is later. If Purchaser is
bound by an Existing Non-FDR Agreement, then, unless otherwise agreed by the
parties, the Non-FDR Portfolio shall continue to be processed pursuant to such
Existing Non-FDR Agreement through its expiration date. In connection with any
such conversion, FDR shall have a reasonable period of time to perform due
diligence and propose a conversion plan. Unless the parties mutually agree
otherwise, Customer shall pay all charges for conversion of each Non-FDR
Portfolio including (A) FDR's standard conversion charges (at then-current
hourly rates plus related material charges), and (B) any charges (at
then-current hourly rates plus related materials charges) associated with any
customization of the FDR System specified in the conversion plan applicable to
each such Non-FDR Portfolio. Any such customization shall remain solely the
property of FDR, and Customer shall acquire no right, claim, or interest in the
FDR System or any customization thereof during or after the Term.
(b) If Purchaser and FDR agree that the remaining term of an Existing
Non-FDR Agreement will not provide adequate time to prepare for an orderly
conversion to the FDR System, Purchaser may extend the term of such Existing
Non-FDR Agreement after it Acquires the Non-FDR Portfolio; provided, however,
that no such extension may cause the term of such Existing Non-FDR Agreement to
extend to a date which is more than six (6) months after Customer's acquisition
of the Non-FDR Portfolio. In addition, Customer shall deliver any written notice
which is required to prevent an automatic extension or renewal of such Existing
Non-FDR Agreement.
(c) Customer shall notify FDR, in writing, within thirty (30) days
after the execution of any binding agreement to Acquire a Non-FDR Portfolio if
Customer or any of its Affiliates intends to obtain processing services pursuant
to an Existing Non-FDR Agreement and shall use its best efforts to provide FDR
with a copy of the provisions of such Existing Non-FDR Agreement dealing with
the term, renewal and termination thereof upon the execution by FDR of any
appropriate confidentiality agreement that may be required, unless prohibited by
the terms of such Existing Non-FDR Agreement.
3.4 DISPOSITION OF PORTFOLIOS. Except as provided in Sections 3.6 and 13.1
of this Agreement, upon the sale or other disposition by Customer of all or any
portion of Customer's Accounts (the "Former Accounts"), FDR will no longer be
obligated to provide Services for the Former Accounts for Customer pursuant to
this Agreement (except that FDR will perform Deconversion services pursuant to
the provisions of Section 4.8) and Customer and FDR agree that there shall be no
reduction in the Year 1 Minimum Processing Fee or the Minimum Processing Fees
set forth in Section 4.4.
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3.5 EXCLUSION OF CERTAIN ACQUIRED ACCOUNTS. Section 3.3 shall not apply to,
and FDR shall have no obligation to convert to the FDR System, any portfolio of
Cardholder Accounts of less than 50,000 Cardholder Accounts at the time of
Acquisition.
3.6 MERGER OR CHANGE OF CONTROL. If Customer is merged into an Entity that,
prior to such merger, was not an Affiliate of Customer, and such Entity is the
survivor of such merger (the "Surviving Entity"), then (i) the provisions of
this Agreement shall continue to apply to all Customer Accounts which were
subject to this Agreement prior to such merger, but shall not apply to any
Customer Accounts of the Surviving Entity or any of its Affiliates which were
not subject to this Agreement prior to such merger (including portfolios
acquired subsequent to the merger) and (ii) the Surviving Entity, as Customer's
successor-in-interest, shall continue to be bound by Customer's obligations
hereunder. If there is a Change of Control of Customer, then the provisions of
this Agreement shall continue to apply to all Customer Accounts of Customer and
its Affiliates immediately prior to such Change of Control, but shall not apply
to any Customer Accounts of the Entity or Entities that Acquire Control of
Customer which were not subject to this Agreement prior to such Change of
Control.
ARTICLE 4
PAYMENT FOR SERVICES
--------------------
4.1 PROCESSING FEES. Customer shall pay FDR the Processing Fees set forth
in Exhibit A to this Agreement. For each Processing Year after Processing Year
1, FDR may increase each line item of Processing Fees set forth in Exhibit A to
this Agreement which were in effect for the immediately preceding Processing
Year by an amount not to exceed a percentage of the Processing Fees which were
in effect for the immediately preceding Processing Year. The amount of the
increase for any such Processing Year shall not exceed the greater of (a) three
percent (3%) or (b) the percentage change in the CPI during a period described
below; provided, however, that in no event shall any such increase be less than
0%. The percentage change in the CPI shall be calculated, and notification given
to Customer ninety (90) days in advance of the effective date of said increase,
by comparing the CPI using a twelve (12) month period ending three (3) months
prior to notification to Customer and expressing the increase in said CPI
through the twelve (12) month period as a percentage.
4.2 SPECIAL FEES. Customer shall pay to FDR the Special Fees for amounts
paid to third-party providers, computed in accordance with Exhibit A to this
Agreement. If, at any time while this Agreement is in effect, the charges are
increased or decreased to FDR for items which are included in the Special Fees
or FDR obtains communication or other services included in the Special Fees by
another method, resulting in an increase or a decrease in the charges to FDR for
such items, then FDR shall increase or decrease (as appropriate) by an equal
amount the Special Fees Customer is then paying FDR for such items under this
Agreement. Such price change by FDR shall be effective on the effective date of
the increase to FDR.
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4.3 NEW PRODUCTS. If FDR commences to offer any new services or products
generally to its customers and Customer elects to use any such service or
product, or if Customer elects to use services or products which Customer had
not previously elected to use, then FDR shall provide such service or product at
FDR's then current fees and charges for such service or product or such other
price as FDR and Customer may mutually agree.
4.4 MINIMUM FEES. In Processing Year 1, Customer will require and shall pay
FDR for processing services sufficient to generate aggregate Processing Fees at
least equal to one million five hundred thousand dollars ($1,500,000.00) (the
"Year 1 Minimum Processing Fee"). In each Processing Year after Processing Year
1, Customer will require and shall pay FDR for processing services sufficient to
generate aggregate Processing Fees at least equal to eighty percent (80%) of the
Processing Fees paid during the immediately preceding Processing Year, but in no
event less than one million dollars ($1,000,000.00) (the "Minimum Processing
Fees"). FDR shall calculate the total Processing Fees paid by Customer in
respect of Services performed during each Processing Year (the "Total Annual
Processing Fees") within ninety (90) days after the end of each Processing Year
and will, after ten (10) days written notice to Customer, draw upon Customer's
account pursuant to Section 4.5 of this Agreement for the amount, if any, by
which the Year 1 Minimum Processing Fees or the Minimum Processing Fees, as
applicable, for the Processing Year exceed the Total Annual Processing Fees for
the Processing Year. For the avoidance of doubt and based on economic
assumptions material to each party underlying this transaction, Customer and FDR
expressly agree that Customer shall pay FDR Processing Fees each Processing Year
in an amount at least equal to the Year 1 Minimum Processing Fee or the Minimum
Processing Fees, as applicable, until this Agreement is terminated by Customer
solely pursuant to the provisions of Section 9.2 of this Agreement or until FDR
terminates this Agreement and invokes compensatory payments pursuant to Section
9.4 of this Agreement.
4.5 METHOD OF PAYMENT. To facilitate the payment of Processing Fees,
Special Fees, compensatory payments pursuant to Section 9.4 of this Agreement
and any other fee, tax, interest payment, charge or amount due or payable to FDR
under this Agreement, Customer shall provide FDR with access to a bank account
of Customer's funds not requiring signature, including notifying FDR of the
demand deposit account number and transit routing number for the account. FDR
may draw upon the bank account to pay fees, taxes, interest payments, charges,
or any other amount due or payable to FDR under the terms of this Agreement. The
detailed records of the amounts drawn on the account of Customer will be
provided by FDR to Customer on a monthly basis. FDR shall be under no obligation
to effect the Transfer until the account has been established as provided
herein.
4.6 INTEREST. If FDR is unable to obtain payment of Processing Fees,
Special Fees, compensatory payments pursuant to Section 9.4 of this Agreement or
any other fee, tax, interest payment, charge or amount due or payable to FDR
under this Agreement at the time provided for payment under this Agreement, the
unpaid amount of any Processing Fees, Special Fees, compensatory payments
pursuant to Section 9.4 of this Agreement or other fee, tax, interest payment,
charge or amount shall bear interest at the rate equal to the lesser of (a) the
sum of the then current Prime Lending Rate (as quoted by the Wall Street
Journal) plus two percent (2%) per annum, or (b) the maximum rate permitted by
applicable law, from the date on which payment should have been available until
the date on which FDR receives the payment.
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4.7 TAXES.
(a) Customer shall pay all taxes and similar charges, however
designated, which are imposed by any governmental authority by reason of FDR's
fulfillment of its obligations hereunder except for income taxes payable by FDR
on amounts earned by FDR or property taxes payable by FDR on property owned by
FDR. Without limiting the foregoing, Customer shall promptly pay FDR for any
amounts actually paid or required to be collected or paid by FDR.
(b) Customer authorizes FDR to calculate the total amount of sales
taxes due from Customer hereunder. Customer shall supply FDR with all
information necessary for FDR to compute and remit the taxes (including any tax
exempt certificate, claim letter, or similar documentation). FDR shall remit the
sales taxes to the appropriate taxing authority on behalf of Customer based on
the information available to FDR. If FDR underpays or overpays such sales taxes,
Customer shall be responsible for promptly paying any shortfalls (including any
penalties or interest) and for collecting any refunds from the appropriate
taxing authority; provided, however, if such underpayment is solely the result
of the negligence of FDR, FDR shall be responsible for any penalties associated
with such underpayment.
4.8 DECONVERSION. Upon (i) expiration or termination of this Agreement,
(ii) transfer by Customer of any accounts from the FDR System to a third party,
(iii) abandonment or deletion by Customer (or by FDR, MasterCard or VISA on
behalf of Customer) of any BIN or ICA of Customer relating to accounts from the
FDR System, or (iv) manual removal by Customer of any accounts from the FDR
System, Customer shall pay FDR, at FDR's then current rates, for each activity
completed by FDR in order to accomplish the Deconversion of affected accounts,
including systematic stripping and removal of all such account information from
the FDR System. Upon Customer notification pursuant to Exhibit F and assuming
payment in full by Customer of all amounts due and undisputed under this
Agreement, FDR will perform the activities necessary to accomplish Deconversion.
ARTICLE 5
DISPUTE RESOLUTION AND INDEMNIFICATION
--------------------------------------
5.1 INFORMAL DISPUTE RESOLUTION. Any controversy or claim between FDR and
Customer arising from or in connection with this Agreement whether based on
contract, tort, common law, equity, statute, regulation, order or otherwise
("Dispute"), shall be resolved as follows:
(a) upon written request of either FDR or Customer, the parties shall
each appoint a representative to meet and attempt to resolve such Dispute;
(b) the designated representatives shall meet as often as the parties
reasonably deem necessary to discuss the problem in an effort to resolve the
Dispute without the necessity of any formal proceeding; and
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(c) arbitration pursuant to Exhibit D for the resolution of a Dispute
may not be commenced until the earlier of:
(i) the date that the designated representatives conclude in good
faith that amicable resolution through continued negotiation
of the matter does not appear likely; or
(ii) thirty (30) days after the date that either party requested
negotiation of the Dispute pursuant to Section 5.1(a) of this
Agreement.
(d) Notwithstanding the foregoing, this Section 5.1 shall not be
construed to prevent a party from instituting formal proceedings at any time to
avoid the expiration of any applicable limitations period, to preserve a
superior position with respect to other creditors or to seek temporary or
preliminary injunctive relief pursuant to Section 10.7.
(e) Any oral or written communications made by either party to the
other pursuant to this Section 5.1 shall be deemed privileged settlement
communications inadmissible as evidence in any litigation or arbitration between
the parties.
5.2 ARBITRATION. If Customer and FDR are unable to resolve any Dispute in
the manner set forth in Section 5.1, such Dispute shall be submitted to
arbitration in the manner set forth in Exhibit D.
5.3 INDEMNIFICATION. The indemnification rights and obligations of Customer
and FDR under this Agreement are contained in Exhibit E.
ARTICLE 6
LIMITATION OF LIABILITY
-----------------------
6.1 LIMITATION ON LIABILITY. FDR's cumulative liability for any loss or
damage, direct or indirect, for any cause whatsoever (including, but not limited
to those arising out of or related to this Agreement) with respect to claims
(whether third party claims, indemnity claims or otherwise) relating to events
in any one Processing Year shall not under any circumstances exceed the lesser
of (a) the Minimum Processing Fees for such Processing Year and, in the case of
Processing Year 1, the Year 1 Minimum Processing Fee or (b) the amount of the
Processing Fees paid to FDR pursuant to this Agreement for Services performed in
the immediately preceding Processing Year, and, in the case of Processing Year
1, the Year 1 Minimum Processing Fee.
6.2 NO SPECIAL DAMAGES. IN NO EVENT SHALL FDR BE LIABLE UNDER ANY THEORY
FOR ANY LOST PROFITS, EXEMPLARY, PUNITIVE, SPECIAL, INCIDENTAL, INDIRECT OR
CONSEQUENTIAL DAMAGES.
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ARTICLE 7
DISCLAIMER OF WARRANTIES
------------------------
FDR SPECIFICALLY DISCLAIMS ALL WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED,
INCLUDING WARRANTIES OF MERCHANTABILITY, ARISING OUT OF OR RELATED TO THIS
AGREEMENT. THIS AGREEMENT IS A SERVICE AGREEMENT AND THE PROVISIONS OF THE
UNIFORM COMMERCIAL CODE SHALL NOT APPLY TO IT.
ARTICLE 8
TERM OF AGREEMENT
-----------------
8.1 TERM. This Agreement is effective from the date hereof and shall extend
for three (3) Processing Years (the "Original Term"). Processing Year 1 of the
Term shall commence on the first day of November, 1999 and continue through the
last day of October, 2000 . For purposes of this Agreement, a "Processing Year"
means each twelve (12) month period commencing on the first day of November and
ending on the last day of October.
8.2 RENEWAL. After the Original Term, this Agreement shall automatically be
renewed for consecutive periods of one (1) Processing Year (each a "Renewal
Term"), unless either party gives the other party written notice at least nine
(9) months prior to the termination date of the Original Term or the
then-current Renewal Term that the Agreement will not be renewed.
ARTICLE 9
TERMINATION
-----------
9.1 TERMINATION BY FDR. FDR may terminate this Agreement:
(a) if Customer fails to establish the account required by Section 4.5
of this Agreement within twenty-four (24) hours after written notice of its
failure to establish the account or immediately without notice if Customer
thereafter fails to maintain the account;
(b) if FDR is unable to receive payment from Customer of any amounts
due and undisputed under this Agreement because sufficient funds are not
available in the account established pursuant to Section 4.5 of this Agreement
and Customer, within forty eight (48) hours after written notice, fails to
provide and maintain sufficient funds in the account to permit FDR to receive
full payment of such amounts from the account or immediately without notice if
FDR has the right more than three times in any twelve month period to give
notice under this paragraph whether or not the notice is given;
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(c) immediately without notice upon the termination of Customer's
membership in VISA or MasterCard, or if FDR has the right to give notice to
MasterCard or VISA as provided under "Failure to Transfer" in Exhibit F to this
Agreement whether or not the notice is given;
(d) if Customer fails to pay any Daily Amount when required as
provided in Exhibit F to this Agreement and does not cure the failure within
four (4) hours after written notice of the failure or immediately without notice
if FDR has the right more than three times in any twelve month period to give
notice under this paragraph whether or not the notice is given;
(e) if Customer fails to pay any amount due under this Agreement which
does not give rise to the right to terminate under any other provision of this
Section 9.1 within twenty (20) days after written notice to Customer of its
failure to pay the amount;
(f) upon twenty-four (24) hours notice by FDR if FDR has terminated
Interchange Settlement of transactions on behalf of Customer as described under
"Violation of Rules" in Exhibit F to this Agreement for more than ten (10)
consecutive days or for more than twenty (20) days in any Processing Year; or
(g) if any Insolvency Event occurs with respect to Customer.
The rights of FDR to terminate under this Section 9.1 are cumulative and the
existence of the right under any provision or subsection is not exclusive of the
right under any other provision or subsection.
9.2 TERMINATION BY CUSTOMER. Customer may terminate this Agreement:
(a) if any Insolvency Event occurs with respect to FDR;
(b) pursuant to the provisions of Section 2.10 if FDR fails to perform
in accordance with the Performance Guidelines; or
(c) upon written notice to FDR if FDR fails to perform or observe any
of the terms, covenants or conditions of this Agreement, which when in the
context of this Agreement taken as a whole are material and FDR fails to cure
such breach within thirty (30) days following its receipt of the written notice
of such breach.
In the event of a termination of this Agreement by Customer pursuant to item
(a), (b) or (c) above, Customer shall not be responsible for payment to FDR of
any compensatory payment set forth in Section 9.4(a) below. In addition to the
foregoing , Customer may terminate this Agreement for its convenience at any
time upon at least one hundred eight (180) days' prior written notice to FDR,
provided that Customer pays to FDR all amounts described in Section 9.4 of this
Agreement, including, but not limited to, the compensatory payment described
therein.
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9.3 EFFECT OF TERMINATION. Except as provided in Section 4.8, upon
termination, FDR shall have no further obligation to provide services to
Customer and all outstanding unpaid amounts due and owing to FDR shall become
immediately due and payable. Termination shall not affect the following:
(a) the obligation of Customer to pay for services rendered or any
other obligation or liability owing or which becomes owing under this Agreement
whether the obligations arise prior to or after the date of termination
including the obligations to make the payments provided in Article 4 of this
Agreement, Section 9.4 of this Agreement and as described under "Trailing
Activity" in Exhibit F to this Agreement;
(b) the obligations set forth in this Agreement in connection with any
third party software pursuant to Exhibit A; or
(c) the obligations of Customer regarding deletion, transfer of
abandonment of BINs and ICAs pursuant to Section 4.8 and Exhibit F; or
(d) the provisions of Articles 5, 6, 7, and 10 and Exhibits D and E.
9.4 PAYMENTS UPON TERMINATION.
(a) If FDR elects to terminate this Agreement for cause (for purposes
of this Section 9.4(a), "for cause" shall mean pursuant to the terms of Section
9.1) or if Customer elects to terminate this Agreement for its convenience
pursuant to the provisions of Section 9.2, Customer and FDR agree that, based on
economic assumptions material to each party, Customer shall make a compensatory
payment to FDR. Such compensatory payment shall be made by Customer upon
termination by FDR, and prior to Deconversion, and shall equal the sum of:
(i) the Year 1 Minimum Processing Fee or Minimum Processing Fees,
as applicable, as set forth in Section 4.4 of this Agreement,
for the Processing Year in which the termination occurs (after
crediting Customer for any Processing Fees paid for Services
provided in such Processing Year); and
(ii) the sum of the present values of a payment in each full
Processing Year (other than the year of termination) which
remains during the Term of this Agreement in an amount equal
to thirty five percent (35%) of the Year 1 Minimum Processing
Fees or Minimum Processing Fees, as applicable, for the
Processing Year in which termination occurs.
(b) In determining the present value of the amount set forth in (a)
(ii) above, an interest rate equal to the three (3) month Treasury Bill Rate, as
quoted by The Wall Street Journal for the date on which termination occurs, or
if not available on the date of termination, as soon thereafter as the next
edition of The Wall Street Journal is published, shall be assumed and the
payments shall be assumed to be made on the first day of each Processing Year.
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(c) FDR and Customer agree that the compensatory payment set forth in
Section 9.4(a) is a reasonable estimation, as of the date of this Agreement, of
the actual damages which FDR would suffer if FDR were to fail to receive the
processing business for the full Term.
(d) Despite the foregoing, nothing in this Section 9.4 shall limit
either party's right to recover from the other party any amounts for which such
other party is otherwise liable under this Agreement, except that upon payment
of amounts due under Section 9.4(a), Customer shall not be responsible for
Minimum Processing Fee shortfalls after the year of termination.
ARTICLE 10
CONFIDENTIAL NATURE OF DATA
---------------------------
10.1 CUSTOMER'S PROPRIETARY INFORMATION. Upon Customer's request, FDR shall
return to Customer (upon the expiration or termination of all of FDR's
obligations under this Agreement and payment by Customer of all amounts due to
FDR hereunder) all or any requested portion of the proprietary and confidential
data of Customer disclosed to FDR including the Cardholder Master Files, Agency
Bank Master Files, Cardholder Revolving Transaction Files and CIS Memo Files
(collectively, "Customer's Proprietary Information").
10.2 FDR'S PROPRIETARY INFORMATION. Customer acknowledges that all product
and system developments, Enhancements, improvements and modifications disclosed,
provided or used by FDR shall remain solely and exclusively the property of FDR.
Customer shall not obtain any proprietary rights in any proprietary or
confidential information which has been or is disclosed to Customer by FDR,
including without limitation, any data or information that is a trade secret or
competitively sensitive material, User Manuals, screen displays and formats,
FDR's computer software and documentation, software performance results, flow
charts and other specifications (whether or not electronically stored), data and
data formats (collectively, "FDR's Proprietary Information") whether any of the
materials are developed or purchased specifically for performance of this
Agreement or otherwise. Customer shall, and shall cause its Affiliates to,
return to FDR all of FDR's Proprietary Information upon the expiration or
termination of this Agreement.
10.3 CONFIDENTIALITY OF AGREEMENT. Except as required by law, Customer
shall keep confidential and not disclose, and shall cause its Affiliates and
their respective directors, officers, employees, representatives, agents and
independent contractors to keep confidential and not disclose, any of the terms
and conditions of this Agreement to any third party without the prior written
consent of FDR.
10.4 CONFIDENTIALITY. FDR and Customer shall maintain Customer's
Proprietary Information and FDR's Proprietary Information, respectively, in
strict confidence. Without limiting the generality of the foregoing, FDR and
Customer each agree:
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(a) not to disclose or permit any other person or Entity access to
Customer's Proprietary Information or FDR's Proprietary Information, as
appropriate, except that the disclosure or access shall be permitted to an
employee, officer, director, agent, representative, external or internal
auditors or independent contractor of the party requiring access to the same in
the course of his or her employment or services;
(b) to ensure that its employees, officers, directors, agents,
representatives and independent contractors are advised of the confidential
nature of Customer's Proprietary Information and FDR's Proprietary Information,
as appropriate, and are precluded from taking any action prohibited under this
Article 10, provided that in any event Customer and FDR shall each be liable for
any breach of this Article 10 by their respective employees, officers,
directors, agents, representatives and independent contractors;
(c) not to alter or remove any identification, copyright or
proprietary rights notice which indicates the ownership of any part of
Customer's Proprietary Information or FDR's Proprietary Information, as
appropriate;
(d) to notify the other promptly and in writing of the
circumstances surrounding any possession, use or knowledge of Customer's
Proprietary Information or FDR's Proprietary Information, as appropriate, at any
location or by any Entity other than those authorized by this Agreement; and
(e) not to use Customer's Proprietary Information or FDR's Proprietary
Information (as applicable) for any purpose other than for the fulfillment of
its obligations under this Agreement.
10.5 RELEASE OF INFORMATION. Despite the foregoing, Customer agrees that
Customer's Proprietary Information may be made available to VISA, MasterCard or
to supervisory or regulatory authorities of Customer upon the written request of
any of the foregoing; provided, however, that FDR will provide Customer with
notice and an opportunity to object in the case of any non-routine requests from
such Entities.
10.6 EXCLUSIONS. Nothing in this Article 10 shall restrict either party
with respect to information or data identical or similar to that contained in
Customer's Proprietary Information or FDR's Proprietary Information, as
appropriate, but which: (a) the receiving party can demonstrate was rightfully
possessed by it before it received the information from the disclosing party;
(b) was in the public domain prior to the date of this Agreement or subsequently
becomes publicly available through no fault of the receiving party or any Entity
acting on its behalf; (c) was previously received by the receiving party from a
third party or is subsequently furnished rightfully to the receiving party by a
third party (no Affiliate of FDR or Customer shall be considered to be a third
party) not known to be under restrictions on use or disclosure; (d) is
independently developed by such party; (e) is required to be disclosed by law,
regulation or court order, provided that the disclosing party will exercise
reasonable efforts to notify the other party prior to disclosure; or (f) is
required to be disclosed to comply with or to enforce the terms of this
Agreement.
16
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10.7 REMEDY. If either party breaches this Article 10, the non-breaching
party will suffer irreparable harm and the total amount of monetary damages for
any injury to such party will be impossible to calculate and therefore an
inadequate remedy. Accordingly, the non-breaching party may (a) seek temporary
and permanent injunctive relief against the breaching party or (b) exercise any
other rights and seek any other remedies to which the non-breaching party may be
entitled to at law, in equity and under this Agreement for any violation of this
Article 10. The provisions of this Article 10 shall survive the expiration or
termination of this Agreement.
ARTICLE 11
REPRESENTATIONS
---------------
11.1 FDR'S REPRESENTATION. FDR represents and warrants that the execution
and delivery of this Agreement and the consummation of the transaction herein
contemplated does not conflict in any material respect with or constitute a
material breach or material default under the terms and conditions of any
documents, agreements or other writings to which it is a party.
11.2 CUSTOMER'S REPRESENTATION. Customer represents and warrants that the
execution and delivery of this Agreement and the consummation of the transaction
herein contemplated does not conflict in any material respect with or constitute
a material breach or material default under the terms and conditions of any
documents, agreements or other writings to which it is a party.
ARTICLE 12
INTERCHANGE SETTLEMENT
----------------------
FDR and Customer agree that they will handle and settle Interchange Settlement
pursuant to the terms and conditions governing Interchange Settlement as set
forth in Exhibit F.
ARTICLE 13
MISCELLANEOUS
-------------
13.1 ASSIGNMENT. Except as otherwise provided herein, the rights and
obligations of Customer are personal and not assignable, either voluntarily or
by operation of law, without the prior written consent of FDR, which consent
shall not be unreasonably withheld. In the event of a sale by Customer of all or
substantially all of Customer's Cardholder Accounts, FDR shall consent to the
assignment of Customer's rights and responsibilities hereunder to the purchaser
of Customer's Cardholder Accounts, unless FDR has reasonable objections to the
financial condition or reputation of the purchaser. Upon such assignment,
Customer shall be deemed relieved from all responsibilities and obligations
hereunder to the extent that such responsibilities and obligations are assumed
in writing by the purchaser. Subject to the foregoing, all provisions contained
in this Agreement shall extend to and be binding upon the parties hereto or
their respective successors and permitted assigns.
17
<PAGE>
13.2 BUSINESS CONTINUITY PLAN. FDR has created a business continuity plan
(the "Business Continuity Plan") and will provide Customer with a written
summary of same upon written request. FDR reserves the right to change such
Business Continuity Plan and, upon request, will explain all changes. No change
shall degrade the quality of the Business Continuity Plan in a manner which has
a material, adverse impact on the Services. FDR will make revisions to its
Business Continuity Plan as necessary to meet or exceed regulatory agency
contingency planning criteria. FDR's Business Continuity Plan includes a
schedule for recovering critical business functions.
13.3 STATE LAW. Except as provided in Exhibit D, this Agreement shall be
governed by the laws of the State of Delaware as to all matters including
validity, construction, effect, performance and remedies without giving effect
to the principles of choice of law thereof. For purposes of any suit, action or
proceeding in connection with any claim arising out of this Agreement, Customer
agrees that any process to be served in connection therewith shall, if
delivered, sent or mailed in accordance with Section 13.4, constitute good,
proper and sufficient service thereof.
13.4 NOTICE. All notices which either party may be required or desire to
give to the other party shall be in writing and shall be given by personal
service, telecopy, registered mail or certified mail (or its equivalent), or
overnight courier to the other party at its respective address or telecopy
telephone number set forth below. Mailed notices and notices by overnight
courier shall be deemed to be given upon actual receipt by the party to be
notified. Notices delivered by telecopy shall be confirmed in writing by
overnight courier and shall be deemed to be given upon actual receipt by the
party to be notified.
If to FDR: With a copy to:
First Data Resources Inc. First Data Resources Inc.
10825 Farnam Drive. 10825 Farnam Drive
Omaha, Nebraska 68154 Omaha, Nebraska 68154
Attn: President Attn: General Counsel
Telecopy Number: 402-222-7334 Telecopy Number: 402-222-7700
If to Customer: With a copy to:
Fidelity Federal Bank Bank Plus Credit Services
4565 Colorado Boulevard 12901 S.W. Jenkins Road, Suite D
Los Angeles, California 90039 Beaverton, Oregon 97005
Attn: Chief Executive Officer Attn: Chief Operating Officer
A party may change its address or addresses set forth above by giving the other
party notice of the change in accordance with the provisions of this section.
18
<PAGE>
13.5 WAIVER. The failure of either party at any time to require performance
by the other party of any provision of this Agreement shall not affect in any
way the full right to require the performance at any subsequent time. The waiver
by either party of a breach of any provision of this Agreement shall not be
taken or held to be a waiver of the provision itself.
13.6 RELATIONSHIP OF PARTIES. Nothing contained in this Agreement shall be
deemed to create a partnership, joint venture or similar relationship between
the parties. The parties' relationship shall be that of independent parties
contracting for services; provided that, for purposes of Interchange Settlement
only, the parties relationship shall be that of principal and agent as set forth
in Exhibit F. Neither party shall hold itself out as having the authority to
bind the other except as specifically provided in connection with Interchange
Settlement. All personnel and other agents employed by either party in
connection with this Agreement are such party's or its agent's employees and not
employees or agents of the other party.
13.7 THIRD PARTY BENEFICIARIES. This Agreement is entered into solely for
the benefit of FDR and Customer and shall not confer any rights upon any Entity
not a party to this Agreement.
13.8 SUBCONTRACTORS. FDR may subcontract all or any part of the Services,
but, notwithstanding any such subcontract, FDR shall remain primarily
responsible for performance of the Services.
13.9 FORCE MAJEURE AND RESTRICTED PERFORMANCE. If performance by either
party hereto of any service or obligation under this Agreement, including
Transfer or Deconversion, is prevented, restricted, delayed or interfered with
by reason of labor disputes, strikes, acts of God, floods, lightning, severe
weather, shortages of materials, rationing, utility or communication failures,
failure of MasterCard or VISA, failure or delay in receiving electronic data,
earthquakes, war, revolution, civil commotion, acts of public enemies, blockade,
embargo, or any law, order, proclamation, regulation, ordinance, demand or
requirement having legal effect of any government or any judicial authority or
representative of any such government, or any other act, omission or cause
whatsoever, whether similar or dissimilar to those referred to in this clause,
which are not reasonably foreseeable by, and are beyond the reasonable control
of, the offending party, then the offending party shall be excused from the
performance of its obligation so affected to the extent of the prevention,
restriction, delay or interference. As a condition to continuing to perform
embossing services for card issuing members of VISA, FDR was required to enter
into VISA Card Personalization Agreements (the "VISA Agreements"). Under certain
circumstances VISA is permitted, pursuant to the VISA Agreements, to temporarily
or permanently prevent or restrict FDR's right to perform embossing services for
card issuing members of VISA. Customer and Customer's Transaction Card
Affiliates hereby agree that if, as a result of VISA exercising its rights under
the VISA Agreements, FDR is prevented or restricted by VISA from performing
embossing services for Customer or Customer's Transaction Card Affiliates, then
FDR shall be excused from the performance of such embossing services to the
extent of such prevention or restriction by VISA.
13.10 SEVERABILITY. If any provision of this Agreement is held invalid or
unenforceable for any reason, the invalidity shall not affect the validity of
the remaining provisions of this Agreement, and the parties shall substitute for
the invalid provisions a valid provision which most closely approximates the
intent and economic effect of the invalid provision.
19
<PAGE>
13.11 AUDIT. From time to time during the Term of this Agreement, FDR will
allow a third party, selected by FDR, to perform an audit of the electronic data
processing environment maintained by FDR to provide the services contemplated
under this Agreement. FDR shall provide Customer and its primary federal
regulatory agency with a copy of the results of the audit and/or with a copy of
the SAS 70 audit report if requested in writing. FDR shall submit to an
examination by the United States Office of Thrift Supervision ("OTS"), at
reasonable times and upon reasonable notice, in order to evaluate and monitor
the soundness of FDR so as to limit Customer's risk. OTS will have the authority
and responsibility provided pursuant to the Examination Parity and Year 2000
Readiness for Financial Institutions Act, 12 U.S.C. 1464(d)(7) relating to
services performed under this Agreement. FDR is examined routinely by the
federal agencies of the Federal Financial Institutions Examination Council,
including the Office of Thrift Supervision. Customer may obtain copies of
examination reports by written request to its primary federal regulatory agency.
13.12 RISK OF LOSS. Customer shall be responsible for any and all risk of
loss to any tangible item (a) provided by FDR for Customer (including without
limitation statements and embossed cards) upon the delivery of such items to the
U.S. Postal Service or such other courier as Customer may select, and (b)
provided by Customer to FDR until actual receipt of such items by FDR. It is
expressly understood that the U.S. Postal Service and any courier selected by
Customer are the agents of Customer and not FDR.
13.13 EQUAL EMPLOYMENT OPPORTUNITY. FDR will not discriminate against any
employee or applicant for employment because of race, color, religion, sex,
national origin, disability, age or veteran status as ordered by the Secretary
of Labor pursuant to Section 202 of Executive Order 11246, Section 503 of the
Rehabilitation Act of 1973, and Section 402 of the Vietnam Era Veterans
Readjustment Assistance Act of 1974.
13.14 ENTIRE AGREEMENT. This Agreement, including Exhibits and the executed
Affiliate Agreements, if any, sets forth all of the promises, agreements,
conditions and understandings between the parties respecting the subject matter
hereof and supersedes all negotiations, conversations, discussions,
correspondence, memorandums and agreements between the parties concerning the
subject matter.
13.15 AMENDMENTS. This Agreement may not be amended except by a writing
signed by authorized representatives of both parties to this Agreement.
13.16 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
20
<PAGE>
IN WITNESS WHEREOF, the parties to this Agreement have caused it to be executed
by their duly authorized officers as of the date first written above.
FIRST DATA RESOURCES INC.
By: /S/ ERIC D. HUFF
------------------------------
Name: ERIC D. HUFF
------------------------------
Title: Executive Vice President
------------------------------
FIDELITY FEDERAL BANK,
a Federal Savings Bank
By: /S/ MARK MASON
------------------------------
Name: MARK MASON
------------------------------
Title: Chief Executive Officer (CEO)
------------------------------
21
<PAGE>
EXHIBIT A
SERVICES/PRICING
I. THE FOLLOWING DOCUMENTS SPECIFICALLY DESCRIBE THE SERVICES REFERRED TO
IN SECTION II:
User Manuals:
Adjustments
Application Controls
Applications
Authorizations
Automated Output System GUI
Automated Transaction Processing
Cardholder Account Maintenance
Cardholder Billing
Cardholder Communication
Cardholder New Accounts
Cardholder Non-Monetary Transactions
Cardholder Plastics
Cardholder Select
Cardholder System Features
Chargeback Message Codes
Chargebacks
Client-Defined Screens
Collections
Collections Productivity Information
Commercial Cards
Commercial View
Correspondence Management
Credit
Customer Inquiry Management System
Customer Inquiry System
Electronic Ticket Capture
Electronic Ticket Capture "PLUS"
Enterprise Presentation
Falcon Fraud Detection System
First Conference
Fraud Control Options
Issuer Marketing Products
Letter Fundamentals
Merchant Letters
Merchant New Accounts
Merchant Non-Monetary Entry
Merchant Processing
Monetary Entry
Off-Line Debit Card
Online Product Control File Parameters
PIN Management
Plastics Related Formats
Point-of-Sale Products
Exh. A - 1
<PAGE>
Product Control File
Product Control File Utilities
Recovery 1
Recovery 1 Controls
Reference Manual
Reports Management System
Retail Processing
Retrievals
Rewards
Security
Settlement
Strategy Management
System Administration
System Overview
Customer bulletins issued by FDR
II. GENERAL SERVICES
A. FDR will provide Customer with an on-line terminal facility (not the
terminals themselves), on-line access to Transaction Card processing software,
adequate computer time and other mechanical Transaction Card services as more
specifically described in the documents referred to in Section I.
B. Reports will be made available to Customer in accordance with FDR's
Reports Management System (RMS).
C. Specific Services are defined in Section IV.
III. ANCILLARY SERVICES
A. InfoSight Services In order to allow Customer and Customer's
Transaction Card Affiliates (hereinafter collectively referred to as "Customer")
with the InfoSight Services set forth in this Agreement, FDR shall permit
Customer to access Customer's data base pursuant to the use of certain software
which FDR licensed from Oracle Corporation ("Oracle") pursuant to a Software
License and Services Agreement dated November 20, 1992 (the "InfoSight
Software").
(1) Customer represents and warrants to FDR that it will permit the
InfoSight Services to be utilized or accessed in its internal
business only by its own personnel. Customer shall not copy the
InfoSight Software, nor shall Customer reverse assemble or
reverse compile the InfoSight Software program, nor transfer,
sublicense, rent, lease or assign the InfoSight Software.
(2) The provisions set forth in this section only grant Customer
the right to use the InfoSight Software and do not grant any
rights of ownership to Customer. Customer shall not publish any
results of any benchmark tests run on the InfoSight Software.
(3) If FDR's right to license the use of the InfoSight Software to
Customer is terminated because the InfoSight Software infringes
upon the copyright, patent, or other proprietary rights of any
party or for any other reason, FDR shall have the right to
terminate the provision of the InfoSight Services upon thirty
(30) days notice to Customer, or such shorter period of notice
as coincides with the termination of FDR's right to license the
use of the InfoSight Software, and FDR shall have no further
liability to Customer with respect to the terminated services.
Exh. A - 2
<PAGE>
(4) Within thirty (30) days after the termination of this
Agreement, or the earlier termination of Customer's license to
use the InfoSight Software, Customer shall deliver to FDR all
copies of the documentation, together with all separate
informational materials provided with respect to the InfoSight
Services or the InfoSight Software, in Customer's possession,
custody or control or, at Customer's discretion, shall destroy
the same, as directed by FDR. In addition, an officer of
Customer shall certify in writing to FDR that, to the best of
its knowledge, use of the InfoSight Software has been
discontinued and all items have been returned or destroyed as
required in this section.
(5) Customer agrees to indemnify and hold harmless Oracle, its
subsidiaries, Affiliates, officers, directors, employees and
agents from and against any and all claims, demands, liability,
loss, cost, damage or expense, including attorneys' fees and
costs of settlement, resulting from or arising out of (i) the
failure of Customer to observe any covenant or condition set
forth in this section, (ii) the violation by Customer of any
applicable statute, law or regulation associated with the
InfoSight Software, or (iii) Customer's use of the InfoSight
Services in a manner not provided for in this section.
(6) Customer acknowledges that the InfoSight Software product is
subject to restrictions and controls imposed under the U.S.
Export Administration Act. Customer certifies that neither the
InfoSight Software nor any direct product thereof is being or
will be acquired, shipped, transferred or reexported, directly
or indirectly, into any country prohibited under the Act.
(7) EXCEPT AS OTHERWISE PROVIDED HEREIN, NEITHER FDR NOR ORACLE
MAKES ANY WARRANTIES, WHETHER ORAL OR WRITTEN, EXPRESS OR
IMPLIED, WITH RESPECT TO THE PRODUCTS OR SERVICES TO BE
PROVIDED HEREUNDER, INCLUDING WITHOUT LIMITATION, ANY WARRANTY
OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. ORACLE
DOES NOT WARRANT THAT THE FUNCTIONS CONTAINED IN THE INFOSIGHT
SOFTWARE WILL MEET CUSTOMER'S REQUIREMENTS OR THAT THE
OPERATION OF THE INFOSIGHT SOFTWARE WILL BE ERROR FREE, OR THAT
DEFECTS IN THE SOFTWARE WILL BE CORRECTED. IN NO EVENT WILL
CUSTOMER HAVE ANY CAUSE OF ACTION AGAINST ORACLE, NOR WILL
ORACLE BE LIABLE TO CUSTOMER FOR ANY LOSSES, DAMAGES OR ANY
ECONOMIC CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS OR
SAVINGS), INCIDENTAL DAMAGES OR PUNITIVE DAMAGES INCURRED OR
SUFFERED BY CUSTOMER EVEN IF ORACLE IS INFORMED OF THEIR
POSSIBILITY.
B. FDR LINKUP SERVICES FDR agrees to provide to Customer and Customer's
Transaction Card Affiliates (hereinafter collectively referred to as "Customer")
electronic mail services consisting of a system whereby Customer may create,
edit, transmit, store and retrieve data, in the form of textual messages and
binary files, utilizing Customer's telephone communication lines to FDR and
certain data storage facilities residing on Customer's computer equipment
("Mailboxes"). FDR shall assign to Customer a number of Mailboxes, which may be
increased or decreased by Customer at any time following at least thirty (30)
days written notice to FDR, provided that Customer shall be required to maintain
at least one (1) Mailbox at all times. In order for Customer to obtain FDR
LinkUp Services as described in this section, FDR shall distribute to Customer
cc:Mail Software and related documentation (collectively, the "cc:Mail
Software").
(1) Customer represents and warrants to FDR that it will permit the
FDR LinkUp Services to be utilized or accessed in its internal
business only by its own personnel. Each copy of the cc:Mail
Software provided to Customer may be used by Customer on a
single computer only, and in no event may Customer install any
cc:Mail product given to Customer by FDR on a network server.
Customer shall not copy the cc:Mail Software except that
Customer may make archival copies of the cc:Mail Software for
the sole purpose of having a backup copy. Customer agrees that
it will not reverse assemble or reverse compile the cc:Mail
Software program, nor transfer, sublicense, rent, lease or
assign the cc:Mail Software. The cc:Mail Software is owned by
cc:Mail, Inc., a division of Lotus Development Corporation
("Lotus") and is protected by United States copyright laws and
international treaty provisions.
Exh. A - 3
<PAGE>
(2) Customer shall be responsible, at its expense, for all computer
equipment at Customer's locations necessary to use the cc:Mail
Software. All communication charges associated with accessing
the FDR computers and equipment used to provide FDR LinkUp
Services shall be paid by Customer.
(3) If FDR's right to distribute the cc:Mail Software is terminated
because the software infringes upon the copyright, patent, or
other proprietary rights of any party or for any other reason,
FDR shall have the right to terminate the provision of FDR
LinkUp Services upon thirty (30) days notice to Customer, or
such shorter period of notice as coincides with the termination
of FDR's right to distribute the software, and FDR shall have
no further liability to Customer with respect to the terminated
services.
(4) Within thirty (30) days after the termination of this
Agreement, or the earlier termination of Customer's right to
use the cc:Mail Software, Customer shall deliver to FDR all
copies of the relevant software and associated documentation,
together with all separate informational materials provided
with respect to the services or the software, in their
possession, custody or control or shall destroy the same, as
directed by FDR. In addition, an officer of Customer shall
certify in writing to FDR that use of the relevant software has
been discontinued and all items have been returned or destroyed
as required in this section.
(5) Customer agrees to indemnify and hold harmless Lotus, its
subsidiaries, affiliates, officers, directors, employees and
agents from and against any and all claims, demands, liability,
loss, cost, damage or expense, including attorneys' fees and
costs of settlement, resulting from or arising out of (i) the
failure of Customer to observe any covenant or condition set
forth in this Section, (ii) the violation by Customer of any
applicable statute, law or regulation, or (iii) Customer's use
of the FDR LinkUp Services.
(6) Customer acknowledges that the cc:Mail Software product is
subject to restrictions and controls imposed under the U.S.
Export Administration Act. Customer certifies that neither the
cc:Mail Software nor any direct product thereof is being or
will be acquired, shipped, transferred or reexported, directly
or indirectly, into any country prohibited under the Act.
RESTRICTED RIGHTS LEGEND. Use, duplication or disclosure by the
U.S. Government is subject to restrictions as set forth in
subparagraph (c)(1)(ii) of the Rights in Technical Data and
Computer Software clause at DFARS 52.227-7013. cc:Mail, Inc.,
2141 Landings Drive, Mountain View, CA 94043.
(7) EXCEPT AS OTHERWISE PROVIDED HEREIN, NEITHER FDR NOR LOTUS
MAKES ANY WARRANTIES, WHETHER ORAL OR WRITTEN, EXPRESS OR
IMPLIED, WITH RESPECT TO THE PRODUCTS OR SERVICES TO BE
PROVIDED HEREUNDER, INCLUDING WITHOUT LIMITATION, ANY WARRANTY
OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. LOTUS
DOES NOT WARRANT THAT THE FUNCTIONS CONTAINED IN THE CC:MAIL
SOFTWARE WILL MEET CUSTOMER'S REQUIREMENTS OR THAT THE
OPERATION OF THE SOFTWARE WILL BE ERROR FREE, OR THAT DEFECTS
IN THE SOFTWARE WILL BE CORRECTED. IN NO EVENT WILL CUSTOMER
HAVE ANY CAUSE OF ACTION AGAINST LOTUS, NOR WILL LOTUS BE
LIABLE TO CUSTOMER FOR ANY LOSSES, DAMAGES OR ANY ECONOMIC
CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS OR SAVINGS),
INCIDENTAL DAMAGES OR PUNITIVE DAMAGES INCURRED OR SUFFERED BY
CUSTOMER EVEN IF LOTUS IS INFORMED OF THEIR POSSIBILITY.
Exh. A - 4
<PAGE>
C. Equasion APS Services FDR shall make available to and perform for
Customer and Customer's Transaction Card Affiliates (hereinafter collectively
referred to as "Customer") Application Processing Services and On-Line Credit
Bureau Report Request Services using the Equasion7 Automated Credit Application
Processing System/Bureau Link7 ("Equasion APS") in accordance with the
description of services set forth in Section I of this Exhibit A. Customer shall
indemnify and hold harmless FDR and its employees from and against all claims,
damages, losses and expenses to the extent that the same arise out of FDR's
performance of Application Processing Services and On-Line Credit Bureau Report
Request Services under this Agreement, to the extent that such claim, damage,
loss or expense is caused by any error, omission or negligence of Customer,
employees of Customer or of any other persons or Entities who are directly or
indirectly associated with Customer or who directly or indirectly participate
with Customer in connection with its operations of a Transaction Card program as
Affiliates, Agent Banks or otherwise. Customer shall have no obligation to
indemnify FDR against any liability, loss or damage FDR might suffer arising
solely out of FDR's negligent performance of Application Processing Services and
On-Line Credit Bureau Report Request Services called for by this Agreement. FDR
will use due diligence in processing the application materials received from
Customer, and the performance by FDR of the Application Processing Services and
the On-Line Credit Bureau Report Request Services called for in this Agreement
shall be consistent with industry standards. Customer acknowledges that the
supplier of Equasion APS to FDR is a third party beneficiary to this Agreement.
Equasion is a registered trademark of First Data Resources Inc. Bureau Link is a
registered trademark of American Management Systems, Incorporated.
D. Recovery 1 Services In order for Customer and Customer's
Transaction Card Affiliates (hereinafter collectively referred to as "Customer")
to obtain Recovery 1 Services as described in this Exhibit A, FDR shall permit
Customer to access FDR's data base and to use the Recovery 1 Shared Services
System software and all human readable user documentation including additions,
updates, revisions, corrections and modifications to the foregoing delivered to
Customer from time to time (collectively, the "Recovery 1 Software") in
accordance with the terms and conditions contained herein.
(1) Customer represents and warrants to FDR that the Recovery 1
Software will be accessed and utilized only in conjunction with
their respective internal businesses and only by its own
personnel. Customer shall not copy, decompile, reverse compile
or reverse assemble the Recovery 1 Software nor transfer,
sublicense, rent, lease or assign the same. The provisions set
forth in this section only grant to Customer a right to use the
Recovery 1 Software and in no way grant or convey any rights of
ownership.
(2) If FDR's right to license the use of the Recovery 1 Software to
Customer is terminated because the Recovery 1 Software
infringes upon the copyright, patent or other proprietary
rights of any party or for any other reason, FDR shall have the
right to terminate the provision of Recovery 1 Services and
Customer's license to the Recovery 1 Software upon thirty (30)
days' written notice and FDR shall have no further liability to
Customer with respect to such Services or Software.
(3) Within thirty (30) days after the termination of this
Agreement, or the earlier termination of Customer's license to
use the Recovery 1 Software, Customer shall deliver to FDR all
copies of the documentation, together with all separate
informational materials provided with respect to the Recovery 1
Services or the Recovery 1 Software, in Customer's possession,
custody or control or, at Customer's discretion, shall destroy
the same, as directed by FDR. In addition, an officer of
Customer shall certify in writing to FDR that, to the best of
its knowledge, use of the Recovery 1 Software has been
discontinued and all items have been returned or destroyed as
required in this section.
Exh. A - 5
<PAGE>
(4) Customer agrees to indemnify and hold harmless FDR, its
subsidiaries, Affiliates, officers, directors, employees and
agents from and against any and all claims, demands, liability,
loss, cost, damage or expense, including attorneys' fees and
costs of settlement, to the extent that the same arise our of
or result from (i) the failure of Customer to observe any
covenant or condition set forth in this section, (ii) the
violation by Customer of any applicable statute, law or
regulation associated with the Recovery 1 Software, or (iii)
Customer's use of the Recovery 1 Services or the Recovery 1
Software in a manner not provided for in this section.
(5) Customer acknowledges that the Recovery 1 Software product is
subject to restrictions and controls imposed under the U.S.
Export Administration Act. Customer certifies that neither the
Recovery 1 Software nor any direct product thereof is being or
will be acquired, shipped, transferred or reexported, directly
or indirectly, into any country prohibited under the Act.
(6) EXCEPT AS OTHERWISE PROVIDED HEREIN, FDR MAKES NO WARRANTIES,
WHETHER ORAL OR WRITTEN, EXPRESS OR IMPLIED, WITH RESPECT TO
THE PRODUCTS OR SERVICES TO BE PROVIDED UNDER THIS SECTION,
INCLUDING WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE. FDR DOES NOT WARRANT THAT
THE FUNCTIONS CONTAINED IN THE RECOVERY 1 SOFTWARE WILL MEET
CUSTOMER'S REQUIREMENTS OR THAT THE OPERATION OF THE RECOVERY 1
SOFTWARE WILL BE ERROR FREE, OR THAT DEFECTS IN THE SOFTWARE
WILL BE CORRECTED. IN NO EVENT WILL CUSTOMER HAVE ANY CAUSE OF
ACTION AGAINST FDR, NOR WILL FDR BE LIABLE TO CUSTOMER FOR ANY
LOSSES, DAMAGES OR ANY ECONOMIC CONSEQUENTIAL DAMAGES
(INCLUDING LOST PROFITS OR SAVINGS), INCIDENTAL DAMAGES OR
PUNITIVE DAMAGES INCURRED OR SUFFERED BY CUSTOMER IN CONNECTION
WITH THE RECOVERY 1 SERVICES OR SOFTWARE EVEN IF FDR IS
INFORMED OF THEIR POSSIBILITY.
E. Personal Ticket Capture (PTC) Services In order for Customer and
Customer's Transaction Card Affiliates (hereinafter collectively referred to as
"Customer") to obtain Personal Ticket Capture (PTC) Services as described in
this section, FDR shall provide Customer with a license to use certain software
which is necessary to receive such services (the "PTC Software").
(1) The license set forth above shall govern the use of the PTC
Software by Customer including but not limited to any
warranties available to Customer with respect to the PTC
Software.
(2) Customer shall be responsible, at its expense, for all computer
equipment at Customer's locations necessary to use the PTC
Software. All communication charges associated with accessing
the FDR computers and equipment used to provide applicable
services shall be paid by Customer.
(3) If FDR's right to license the PTC Software is terminated
because the PTC Software infringes upon the copyright, patent,
or other proprietary rights of any party or for any other
reason, FDR shall have the right to terminate the provision of
the PTC Services upon thirty (30) days notice to Customer, or
such shorter period of notice as coincides with the termination
of FDR's right to license, and FDR shall have no further
liability to Customer with respect to the terminated services.
(4) Within thirty (30) days after the termination of this
Agreement, or the earlier termination of Customer's license to
use the PTC Software, Customer shall deliver to FDR all copies
of the PTC Software and associated documentation, together with
all separate informational materials provided with respect to
the PTC Services or the PTC Software, in its possession,
custody or control or shall destroy the same, as directed by
FDR. In addition, an officer of Customer shall certify in
writing to FDR that use of the PTC Software has been
discontinued and all items have been returned or destroyed as
required in this section.
Exh. A - 6
<PAGE>
F. ACQUIRING DEBIT SERVICES
(1) In addition to the above services, FDR agrees to provide
Customer and Customer's Transaction Card Affiliates
(hereinafter collectively referred to as "Customer") with
Dial-Up Point-of-Sale ("POS") authorization services and
Electronic Ticket Capture ("ETC") services (collectively, the
"Acquiring Debit Services") in connection with the proprietary
debit card networks listed below, which list may be added to or
deleted from in FDR's sole discretion: Money Access Service,
Inc.; New York Cash Exchange; Yankee 24 (a/k/a New England
Network, Inc.); Explore (a/k/a Star System, Inc.); Maestro;
Interlink; Honor; Most; Pulse; Accel; Cash Station; Magic Line;
Tyme; Bankmate; and Kets (collectively, the 'Network'). In the
event that additional debit card networks are added, the terms
and conditions contained herein shall apply automatically
hereto. FDR currently provides the Acquiring Debit Services in
part through a Gateway Access Agreement with Electronic Data
Systems, Inc. ("EDS") and reserves the right to utilize other
access networks or to access directly the Network for purposes
of providing the Acquiring Debit Services. EDS and any
alternative network provider shall be referred to collectively
herein as the "Provider."
(2) All Acquiring Debit Services shall be provided in accordance
with the description of services set forth in Section I of this
Exhibit A of this Agreement. Prices for the Acquiring Debit
Services shall be the same as those charged to Customer in
connection with Customer's credit card operations, except as
set forth in this Exhibit A. In no event shall FDR be
responsible for, and Customer shall indemnify and hold harmless
FDR from and against, any claims, damages, losses, or expenses
to the extent that the same result from any failure,
negligence, or intentional act or omission on the part of the
Provider, the Network, or any part thereof in connection with
the Acquiring Debit Services, including but not limited to any
system downtime or improper authorization of a transaction. In
no event shall FDR be responsible for money damages hereunder
arising from or related to the Acquiring Debit Services which
exceed: (a) the amount of cash, merchandise, and/or services
erroneously dispensed by Customer, FDR, or a Merchant
subscribing to Merchant processing services with Customer
through a point of sale device; and/or (ii) the loss of funds
resulting from amounts erroneously transferred to or from an
account of FDR, Customer, or such a Merchant, in each case
directly caused by FDR's failure to properly service, maintain,
program, or operate the Acquiring Debit Services or any
misconduct or negligence on the part of FDR's officers,
employees, or agents in performing the Acquiring Debit
Services. IN NO EVENT SHALL FDR BE RESPONSIBLE FOR SPECIAL,
INDIRECT, INCIDENTAL, OR CONSEQUENTIAL DAMAGES WHICH CUSTOMER
OR ANY SUCH MERCHANT MAY INCUR OR EXPERIENCE ON ACCOUNT OF
ENTERING INTO OR RELYING UPON THIS AGREEMENT, EVEN IF FDR HAS
BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
(3) Notwithstanding anything in this Agreement to the contrary,
FDR's obligation to provide Acquiring Debit Services shall
terminate automatically without penalty or obligation of any
type to FDR upon the earlier of: (i) the termination of the
Gateway Access Agreement with EDS; (ii) the termination of
FDR's access to the Network or any part thereof; or (iii) the
termination of Customer's membership in the Network or any part
thereof. Customer agrees to comply with all rules, regulations,
procedures, and obligations of each of the entities comprising
the Network.
G. FRAUD MANAGEMENT/FRAUD DETECTION (FALCON) SERVICES FDR shall provide
Customer and Customer=s Transaction Card Affiliates (hereinafter collectively
referred to as "Customer") with Credit Card Fraud Management/Fraud Detection
Services in conjunction with HNC, Inc., and its FalconTM software (hereinafter
referred to as the "HNC Software"), which services shall consist of those
services set forth in this section.
Exh. A - 7
<PAGE>
(1) FDR shall provide Customer with Credit Card Fraud
Management/Fraud Detection Services by utilizing the output of
the Falcon Neural Engine computational model (designed to
detect credit card fraud) which encompasses or contains the
Falcon Credit neural network-based system, as such same
software is licensed to FDR by HNC and is commonly known as the
Falcon Credit Card Fraud Detection Model (hereinafter referred
to as the >Credit Card Output Access=) solely for the purpose
of assisting Customer in detecting possible fraudulent
transaction account activity on the credit card accounts of
Customer and for no other purpose. Except as expressly provided
in this section, no right or license under any patent,
copyright, trade secret, trademark or other intellectual
property of FDR or other person is granted or is to be inferred
from this section. Customer agrees that FDR=s providing of
Credit Card Fraud Management/Fraud Detection Services does not
confer upon Customer any license in or to the Credit Card
Computational Model.
(2) The parties acknowledge that the HNC Software, from which the
Credit Card Output Access is generated, is licensed to FDR
pursuant to a license agreement (the "HNC License Agreement").
FDR shall use commercially reasonable efforts to extend or
renew the initial or any renewal terms, as the case may be, of
the HNC License Agreement and if the HNC License Agreement
expires or is terminated, FDR shall promptly notify Customer of
such termination or expiration. FDR shall use commercially
reasonable efforts to substitute for HNC one or more software
vendors from whom FDR shall license, on commercially reasonable
terms, one or more software packages that will generate output
access that provides, in all material respects, the utility and
performance provided by the Credit Card Output Access generated
by the HNC Software.
(3) FDR and Customer shall mutually establish a fraud detection
strategy designed to fulfill Customer's fraud detection
requirements. Customer's fraud detection strategy shall be
summarized and memorialized in an authorization report which
shall set forth the variables and computational parameters
which reflect such fraud detection strategy (the "Strategy
Approval Form"). Customer will provide a single point of
contact, at least 60 days prior to beginning of service, to
establish start-up requirements. Customer shall notify FDR in
writing of the contact's identity. Customer's contact person
will be authorized to build and approve the fraud detection
strategy, to determine the fraud score criteria, to approve
product control file changes and to approve the Strategy
Approval Form. FDR shall assist Customer in the establishment
of the processing parameters designed to effectively implement
Customer's fraud detection strategy. Customer shall be solely
responsible for approving the processing parameters set forth
in the Strategy Approval Form, and shall verify that such
parameters effectively satisfy the requirements of Customer's
fraud detection strategy. FDR shall construct, or cause to be
constructed, a computational process which reasonably conforms
to Customer's Strategy Approval Form. In no event, however,
shall FDR be liable to any person for any damages caused by
either the HNC Software, any deficiency in the construction of
the processing parameters or any deficiency in the content of
the approved Strategy Approval Form. Furthermore, Customer
shall be responsible for the accuracy of all Customer data and
fraud control data provided to FDR. If Customer desires to
alter its fraud detection strategy, Customer shall notify FDR
in writing at least 30 days before such changes are to become
effective. Customer shall submit to FDR a modified Strategy
Approval Form setting forth the processing parameter changes
desired.
(4) Together with HNC, FDR will provide Customer with the following
Credit Card Call Processing Services:
(a) FDR will utilize its Fraud Detection WorkCenter, using the
HNC Software, to monitor authorizations queued as a result
of the fraud detection criteria and/or fraud score.
Exh. A - 8
<PAGE>
(b) FDR will initiate outbound telephone calls to the
Cardholders of Customer who have had authorization activity
on their account and appear in a Fraud Detection WorkCenter
Queue Group. At Customer=s option, FDR shall either (i) use
a predictive dialer (herein defined as a mechanism by which
outbound calls to the Cardholder Accounts to be worked
hereunder are automatically dialed by the system based upon
the telephone number indicated by the Cardholder master
files of Customer resident at FDR) to place calls or (ii)
manually review accounts for fraud activity (based upon
Customer-defined criteria) in order to call only selected
accounts.
(c) FDR will make up to four attempts to reach the Cardholder
within a 48-hour period. All attempts will be made within
the hours of 8:00 a.m. and 9:00 p.m. (Central Time Zone).
(d) FDR will attempt all home and business telephone numbers as
provided by Customer's Cardholder masterfile.
(e) If FDR is unable to contact the Cardholder, a message for
the Cardholder to contact FDR at a to-be-provided 800 number
will be delivered to the Cardholder's home message machine
and/or to responsible adults.
(f) When the FDR call results in contact with the Cardholder,
and the Cardholder validates the authorization activity, FDR
will record an on-line account memo (to the Customer Inquiry
System) indicating the results of the call.
(g) When the FDR call results in contact with the Cardholder and
the Cardholder is unable to validate the activity, FDR will
initiate a Lost/Stolen Report and place a block on the
account. (Standard fees apply for the Lost/Stolen Report.)
FDR will record an on-line account memo (to the Customer
Inquiry System) indicating the results of the call.
(h) If FDR encounters activity which appears uncharacteristic or
unusual for a Cardholder Account and FDR is unable to
contact successfully the Cardholder, then FDR may place a
block on the Cardholder Account to prevent further
authorization approvals until either the Cardholder or
Customer successfully verifies the activity. On a daily
basis, FDR will fax to Customer a list of accounts which
have been blocked because of uncharacteristic or unusual
account activity. The account will remain blocked until
Customer instructs FDR in writing via fax to remove such
block.
(i) Upon the request of Customer, FDR may at its option, provide
additional services, including the following: telephone
number look-ups, inbound call processing after the 48-hour
period, fraud control services, customized reporting, etc.
These services would be provided at an additional cost to
Customer.
(j) At least annually, HNC shall analyze two separate month-end
reports within the 12-month period being analyzed produced
by the HNC Software that measure the effectiveness of
Customer's existing algorithms, provided that Customer has
over 200,000 Gross Active Credit Card Accounts. HNC shall
then provide Customer with a written analysis of the reports
interpreting the performance of the existing algorithms and
strategies and written recommendations for changes or
updates to such algorithms or strategies to improve their
performance, provided that Customer promptly provides HNC
with the two necessary month-end reports.
Exh. A - 9
<PAGE>
(k) At Customer's request, HNC shall provide Customer with up to
five hours per month, for the first six months following the
date of commencement of Fraud Management/Fraud Detection
Services (the "Falcon Start Date"), and three hours per
month thereafter, of strategy design assistance over the
telephone at no additional charge, provided that Customer
has over 200,000 Gross Active Credit Card Accounts as of the
Falcon Start Date. This service will include recommendations
on fraud strategy design and results interpretation. If such
service exceeds the hours permitted for that particular
month, HNC will be entitled to charge Customer for such
services. HNC and Customer shall independently negotiate the
terms and costs of such additional assistance. Customer will
be entitled to on-site strategy design assistance at an
additional charge; provided, however, that Customer will
receive credit against such additional charge for any unused
telephone strategy design assistance it was eligible to
receive from HNC in that month under this paragraph at the
same rate charged for additional telephone strategy design
assistance.
(l) Upon request by Customer, HNC or FDR may, at its option,
provide the following to Customer: custom system
installation, additional training, and fraud user interface
licensing. HNC shall provide the following to Customer upon
request: fraud strategy consulting and custom fraud models.
Customer will contract directly with HNC for these services,
which will be provided at an additional cost to Customer.
(m) HNC has established a Fraud Control Consortium whereby users
of Credit Card Output Access contribute data for use by HNC
to study fraud patterns, which enables HNC to improve fraud
detection methods. If Customer chooses to join such
Consortium, Customer shall provide data to the Fraud Control
Consortium as required and requested by HNC within 30 days
after the Falcon Start Date and on a calendar quarterly
basis thereafter. If Customer does not wish to join the
Fraud Control Consortium, HNC, upon request of Customer
shall construct a custom fraud model for Customer, as an
additional service, at a cost agreed upon among FDR,
Customer and HNC. Customer acknowledges that FDR will employ
the HNC Software using the Fraud Control Consortium
algorithms to produce Credit Card Output Access for Customer
only if Customer contributes data to the Fraud Control
Consortium.
(5) Notwithstanding any other provisions of this Agreement, either
party may terminate the Credit Card Fraud Management/Fraud
Detection Services hereunder upon 30 days written notice to the
other party.
Exh. A - 10
<PAGE>
IV. PROCESSING FEE DEFINITIONS/PRICES:
<TABLE>
<CAPTION>
Item
Number Item Definition Price Per Item
- ------------- ---------------------- ------------------------------------------------------------------------ --------------------
<S> <C> <C> <C>
0130 ACCD Each selected Cardholder Account of Customer which is transmitted to .0140/account
Downloaded Customer, or any other third party acting on Customer's behalf, for
Account collection purposes in connection with Customer's Automated
Customer Calling Device (ACCD).
2825 Account A match of certain values from two separate Cardholder Accounts .0014/Cardholder
Relationship within Customer's Transaction Card portfolio, indicating a relationship Account on File
between the accounts. per month
7260 Account-Level Each account of a Cardholder of Customer using Account-Level .0046/account on
Processing (ALP) - Processing that remains on Customer's masterfile on the last processing ALP
Cardholder Pricing day of the calendar month as defined on the CD-121 Ledger Activity
Account on File Report or the equivalent report. ALP Services-Cardholder Pricing
allow Customer the ability to set, change and monitor pricing parameters
(including but not limited to annual percentage rate, penalty fees,
minimum payment calculations and annual charges) on a Cardholder Account
automatically at the level of the individual Account based upon decision
tables built by Customer.
2788/ Additional Each variety of Transaction Card, other than MasterCard International, Bundled
2789/ Merchant Card Inc. ("MasterCard") and VISA U.S.A. Inc. ("VISA"), for which a
2790/ Types on File Merchant Account on File accepts transactions and/or authorizations
2791/ (Multicard) from Cardholders, including but not limited to American Express
2792/ Travel Related Services Company, Inc. ("Amex"), Discover Card, Inc.
2794/ ("Discover"), JCB International Credit Card Company, Ltd. ("JCB"),
2796/ and Citicorp Diner's Club Inc. ("Diner's Club").
2797/
2798/
2902/
5701
n/a Address The confirmation or denial of the accompanying address during an n/a
Verification electronic authorization inquiry.
2806 Address Each electronic request for an Address Verification by a Merchant of .0104/inquiry
Verification - Customer.
Acquiring
0281 Address Each instance in which the Cardholder records of Customer located at .0104/inquiry
Verification - FDR are accessed for Address Verification.
Issuing
3519 Address Each voice inquiry request received by FDR from a Merchant 1.7500/request
Verification - requesting a confirmation of the address of a Cardholder.
Voice
n/a Adaptive Control An account control system for the management of Cardholder Accounts, n/a
Services which includes (i) behavior scorecards that rank accounts according
to risk, (ii) software that implements various account management
strategies by using the behavior scores of accounts to determine
various actions to be taken on such accounts, (iii) software that
reports the results of alternative strategies to provide input to
measure the relative effectiveness of such alternative strategies;
and (iv) human statistical analysis of reports resulting in feedback
on the performance of alternative strategies and the development of
new alternative strategies (such account control system hereinafter
is referred to as the "Product"). The Product software is integrated
into FDR's credit account system software which is used to provide the
Services. The Adaptive Control Services and prices set forth in this
Exhibit A are provided for reference only. Customer and FDR hereby
agree that, prior to the commencement of any such services by FDR on
behalf of Customer, Customer and FDR shall be required to execute a
separate contract, which shall include all terms snd conditions for
the provision of such services.
Exh. A -11
<PAGE>
8500 Adaptive Control The number of instances (transactions) in which a Cardholder Account /transaction
Basic Monthly on File (as defined herein) of Customer is processed through the
Service Behavior Scoring System, which may or may not include any of the
applicable adaptive control decision areas (specifically, credit line
management, reissue management, delinquent collections or overlimit
collections), for the applicable calendar month, subject to certain
agent-level bank exclusions. The Behavior Scoring System is an account
control system which aids in the management of credit accounts.
Components of the account control system include (i) behavior
scorecards that rank accounts according to risk, (ii) software that
implements various account management strategies by using the
behavior scores of accounts to determine various actions to be taken
on such accounts, (iii) software that reports the results of
alternative strategies to provide input to measure the relative
effectiveness of such alternative strategies; and (iv) human
statistical analysis of reports resulting in feedback on the
performance of alternative strategies and the development of new
alternative strategies.
Monthly Volume of Transactions Price Per Transaction
0 - 69,999 $.0570**
70,000 - 199,999 .0458
200,000 - 399,999 .0414
400,000 - 599,999 .0393
600,000 - 799,999 .0381
800,000 - 999,999 .0370
1,000,000 - 1,499,999 .0332
1.500,000 - 1,999,999 .0309
2,000,000 - 2,499,999 .0286
2,500,000 - 2,999,999 .0275
3,000,000 - 3,999,999 .0262
4,000,000 - 4,999,999 .0257
5,000,000 - over .0252
Customer and FDR hereby agree that the Adaptive Control Basic Monthly
Service pricing is referenced herein only for convenience, and that
such service shall only be available to Customer pursuant to a separate
Adaptive Control Service Agreement to be mutually agreed upon by
Customer, FDR and Fair, Isaac and Company, Inc. prior to the commencement
of such services.
8501 Adaptive Control Each of Customer's Cardholder Accounts on File (as defined herein) /account per month
Authorizations identified to use the adaptive control portion of the Behavior
Scoring System for controlling authorizations, excluding 'B', 'L',
'U' and 'Z' statused accounts. The Behavior Scoring System is an
account control system which aids in the management of credit accounts.
Components of the account control system include (i) behavior scorecards
that rank accounts according to risk, (ii) software that implements
various account management strategies by using the behavior scores of
accounts to determine various actions to be taken on such accounts,
(iii) software that reports the results of alternative strategies to
provide input to measure the relative effectiveness of such alternative
strategies; and (iv) human statistical analysis of reports resulting in
feedback on the performance of alternative strategies and the development
of new alternative strategies.
Exh. A -12
<PAGE>
Monthly Volume of Accounts Price Per Account
0 - 69,999 $.0114**
70,000 - 199,999 .0092
200,000 - 399,999 .0083
400,000 - 599,999 .0079
600,000 - 799,999 .0076
800,000 - 999,999 .0074
1,000,000 - 1,499,999 .0066
1.500,000 - 1,999,999 .0062
2,000,000 - 2,499,999 .0057
2,500,000 - 2,999,999 .0055
3,000,000 - 3,999,999 .0052
4,000,000 - 4,999,999 .0051
5,000,000 - over .0050
Customer and FDR hereby agree that the Adaptive Control
Authorization Service pricing is referenced herein only
for convenience, and that such service shall only be
available to Customer pursuant to a separate Adaptive Control
Service Agreement to be mutually agreed upon by Customer, FDR
and Fair, Isaac and Company, Inc. prior to the commencement
of such services
2812 Airline Itinerary on Up to four (4) legs of detailed airline itinerary displayed on a .0050/statement
Statement Cardholder Statement.
6501 Annual Activity Each Cardholder Account for which annual activity summary detail is .0530/account
Summary Detail stored in an electronic format.
Storage
2731 Application An on-line system supporting the data entry, credit investigation, 1.0200/application
Processing credit analysis, decisioning, documentation and booking of credit
Services (EAPS) applications on the FDR System. Services include automated credit
scoring and credit limit assignment.
2840 APS Relationship Each storage of a record of Customer depository accounts on the FDR .0052/depository
Account Storage System. Upon entry of application data, a search of the deposit file is account
executed with matches reported to allow
identification of an existing consumer
relationship. Resulting matches can be
queued by the system for verification.
6601 ARU Each audio response unit (ARU) authorization service provided to a .2921/inquiry
Authorization - Merchant of Customer by the use of a touch-tone telephone and local
Local Line Inquiry line telecommunication services. Customer shall pay FDR for each
instance during which FDR has electronic contact with a Merchant of
Customer and receives the Merchant number. In addition, if an audio
response unit authorization inquiry results in a voice inquiry,
Merchant request for assistance or a security action, Customer will
pay FDR for the audio response unit authorization and the appropriate
voice and/or security action charge as provided in this Agreement.
If a Merchant of Customer attempts to use its normal line to obtain
an authorization and the Merchant is unable to use such line
and uses another line, Customer shall pay FDR at the rate charged for
the line used by the Merchant. Local lines for authorization services
are available in the cities listed on-line under a TC-400 transaction.
Exh. A -13
<PAGE>
6603 ARU Each audio response unit (ARU) authorization service provided to a .4137/inquiry
Authorization - Merchant of Customer by the use of a touch-tone telephone and
Interstate WATS interstate WATS line telecommunication services. Customer shall pay
Line Inquiry FDR for each instance during which FDR has electronic contact with a
Merchant of Customer and receives the Merchant number. In addition,
if an audio response unit authorization inquiry results in a voice
inquiry, Merchant request for assistance or a security action, Customer
will pay FDR for the audio response unit authorization and the
appropriate voice and/or security action charge as provided in this
Agreement.
If a Merchant of Customer attempts to use its normal line to obtain
an authorization and the Merchant is unable to use such line and
uses another line, Customer shall pay FDR at the rate charged for the
line used by the Merchant.
6602 ARU Each audio response unit (ARU) authorization service provided to a .4868/inquiry
Authorization - Merchant of Customer by the use of a touch-tone telephone and
Intrastate WATS intrastate WATS line telecommunication services. Customer shall pay
Line Inquiry FDR for each instance during which FDR has electronic contact with a
Merchant of Customer and receives the Merchant number. In addition,
if an audio response unit authorization inquiry results in a voice
inquiry, Merchant request for assistance or a security action, Customer
will pay FDR for the audio response unit authorization and the
appropriate voice and/or security action charge as provided in this
Agreement.
If a Merchant of Customer attempts to use its normal line to obtain
an authorization and the Merchant is unable to use such line and
uses another line, Customer shall pay FDR at the rate charged for the
line used by the Merchant.
0204/ Assistance Request Each miscellaneous customer assistance request from a Cardholder or 1.7500/request
0227/ (Voice) Merchant of Customer that is received by FDR's voice authorization
0228 center.
2519 ATM Balance Each inquiry into the account records of a Cardholder of Customer by .0370/inquiry
Inquiry the Cardholder via an automated teller machine ("ATM").
2883 Auto PIN Change Each call made by a Cardholder of Customer requesting a change to .8415/call
the Personal Identification Number (PIN) associated with the
Cardholder's Transaction Card by the use of a touch-tone telephone.
2722 Automated The set-up of each new account for a Cardholder Account of Customer 1.0972/account
Account Transfer - which is reported Lost or Stolen. Account history is moved from one
Account account and rebuilt on a new one.
Transferred
2723 Automated A transferred Cardholder Account of Customer, which has been .5538/account
Account Transfer - evaluated against Customer's reissue criteria and approved by
Plastic Reissued Customer, is issued a new plastic(s).
2724 Automated A transferred Cardholder Account of Customer, which has been 1.0972/account
Account Transfer - evaluated against Customer's reissue criteria and not approved by
Plastic Reissue Customer, is suspended for review by Customer's personnel.
Suspended
2725 Automated The storage of each suspended account of Customer on the FDR .0109/account
Account Transfer - system awaiting review and disposition by Customer.
Suspended
Account Storage
Exh. A -14
<PAGE>
2845 Automated ICS The automatic reporting of a fraud account to the Issuer's .2000/transaction
Fraud Report Clearinghouse Service (ICS) by the FDR System each time a
Transaction Cardholder Account is set to fraud via an "SL" or "SN" transaction.
0660 Automatic Action A system generated entry made to a Cardholder Account of Customer .0150/item
Entry which appears on Customer's collection screens indicating a collection-
related activity, including but not limited to external status changes,
account re-ages and charge-offs.
2778/ Automatic Each automatic initiation of a chargeback by the FDR System based 2.7433/chargeback
2779/ Chargeback upon predefined parameters, including but not limited to transactions initiated
2780/ involving expired account plastics, accounts listed in the Combined
2831 Warning Bulletin, and accounts which exceed presentment parameters.
n/a Balance An online system for the production, processing and management of n/a
Consolidation balance transfer checks, including authorization and posting of checks,
creation of a check data file, transmission of the check data file to
a third-party vendor selected by FDR for printing and mailing of checks
and related letters and inserts and product management through production
of online balance consolidation reports and generation of a CIS Memo
entry for each balance consolidation request. The third party vendor
selected by FDR for check print and mail services may be an Affiliate of
FDR. At Customer's option, reconciliation services and an Official Check
product may be provided through a separate agreement between Customer and
Integrated Payment Systems (IPS), an Affiliate of FDR. Reconciliation
services include payment of cashed items, reconciling issueds to paids,
. researching and processing exception items, processing stop payments,
storage and retrieval of paid items. Official Checks are centralized
teller checks that receive next-day availability. If such services are
obtained through contract with IPS, third-party print and mail services
also will be provided through the IPS contract. FDR shall not be
responsible for nonperformance, negligent performance or default by IPS
or its third-party vendor under such separate written agreement, or for
providing such services in the event the agreement with IPS expires or is
terminated.
7340 Balance Each balance transfer check included in a file which is transmitted to a .700/check
Consolidation third party vendor for printing and mailing.
Check Data File
Creation/
Transmission
6611 Batch Each inquiry processed for Merchants of Customer and sent to FDR .0245/inquiry
Authorization via magnetic tape, tape to tape transmission or remote job entry (RJE)
Inquiry transmission from Customer or Customer's Merchant.
0207 Batch Header - Each summarization of Merchant Tickets deposited by Customer's .0325/header
CRT Entry Merchant or by Customer ("Batch Header"), and entered remotely from
Customer's terminal(s) by Customer or a third party acting on Customer's
behalf.
0201/ Batch Header - Each summarization of Merchant Tickets deposited by the Merchant, .1500/header
0202 Manual Entry or by Customer, and entered by FDR via hardcopy received from
Customer.
0208 Batch Header - Each summarization of Merchant Tickets deposited by Customer's .0325/header
Tape Entry Merchant or by Customer ("Batch Header"), and transmitted
electronically to FDR via magnetic tape or tape transmission from
Customer or a third party acting on Customer's behalf.
Exh. A -15
<PAGE>
7936 Card Activation - Each update of Customer's Cardholder masterfile information in .1750/account
Account connection with the activation of the Cardholder Account by the
Information Cardholder.
Update
7923 Card Activation - Each automatic initiation of an on-line transaction in conjunction with .4046/transaction
ANI Call-FDR an Automatic Number Identification (ANI) process via an audio
response unit (ARU), changing the status of a Cardholder Account
associated with certain newly issued or reissued plastics
(as determined by Customer), from "inactive" (under certain parameters)
to "active" for transaction authorization purposes.
2868 Card Activation Each initiation of an on-line transaction by the confirmation of .5432/transaction
-ARU Call-FDR Customer requested data captured from Customer's Cardholder, via an
audio response unit (ARU), changing the status of a Cardholder Account
associated with certain newly issued or reissued plastics (as determined
by Customer), from "inactive" (under certain parameters) to "active" for
transaction authorization purposes.
2870 Card Activation - Each entry of an on-line transaction by Customer to change the status .0450/transaction
Customer of a Cardholder Account associated with certain newly issued or
Processed reissued plastics (as determined by Customer), from "inactive" (under
certain parameters) to "active" for transaction authorization purposes.
2869 Card Activation - Each entry of an on-line transaction by FDR, on behalf of Customer, in 1.3315/transaction
Voice Call-FDR conjunction with the confirmation of Customer requested data obtained
from the Customer's Cardholder via a voice call, changing the status
of a Cardholder Account associated with certain newly issued or reissued
plastics (as determined by Customer), from "inactive" (under certain
parameters) to "active" for transaction authorization purposes.
0506 Cardholder Each account of a Cardholder of Customer (including but not limited to .0400/account per
Account on File charged off, authorization only and debit accounts) that remains on month
Customer's master file at FDR on the last processing day of the
calendar month as defined on the CD-121 Ledger Activity Report or the
equivalent report.
0218 Cardholder Annual The fee assessed yearly to a Cardholder in connection with a .0280/account
Charge Cardholder Account of Customer.
6622/ Cardholder Each instance in which the Cardholder records of Customer are .0112/inquiry
6625/ Authorization accessed for an authorization
6628 Inquiry
7020/ Cardholder FDR shall: (i) research Cardholder exception transactions on revoked, 3500/transaction plus
7027 Exception closed and charged-off accounts; (ii) initiate chargebacks in 6% of chargeback
Research accordance with MasterCard and VISA rules and regulations; (iii) funds
recover by FDR handle chargeback representments on reversed chargebacks,
when notified by Customer; and (iv) deliver good faith letters to
Merchant banks where applicable.
2742 Cardholder Customer shall contract with a third party for certain Personal .0500/account
Selected PIN Identification Number (PIN) services in connection with the downloaded
Service authorization of a Cardholder Account. FDR shall download certain
Downloaded Cardholder Accounts of Customer onto a tape to be sent to such a third
Account party.
7262 Cardholder Each transaction generated in connection with a Cardholder Account of .0525/transaction
Selected PIN Customer for which Customer enters an on-line transaction into the
(SMR/SMC) FDR System from a Solicitation Mailer Response (SMR) screen or
Transaction Solicitation Mailer call (SMC) through Customer's ARU system, to
generate a Personal Identification Number (PIN) which has been selected
by the Cardholder in connection with the Cardholder Account.
Exh. A -16
<PAGE>
0131/ Cardholder Each periodic summarization of activity (whether printed or otherwise) .1200/statement
0151 Statement associated with a Transaction Card issued by Customer.
n/a CD-ROM Services The storage, on Compact Disc-Read Only Memory ('CD-ROM'), of n/a
statements and reports for purposes of record retention, accessing and
archival purposes. Customer, at its option, may elect to utilize the CD-
ROM Services and/or On-Line Report Services for the same items.
Notwithstanding anything in this Agreement to the contrary, Customer
is responsible for determining the acceptance of the CD-ROM Services
under state and Federal regulations, including but not limited to
obligations to retain information for a specified period of time,
signature verification and the admissibility of documents into evidence.
It is Customer's responsibility to keep records on other media, if such
are required under state and Federal regulations because of the limited
acceptance or admissibility of the CD-ROM Services or the technology
to be used under this Agreement to provide the CD-ROM Services.
Customer shall provide at its expense the minimum personal computer
configuration set forth below:
386/486 Processor with Hard Drive (486 preferred)
8 MB RAM (12 MB preferred)
3.1 Windows
Mouse
14" VGA Color Monitor (SVGA preferred)
CD-ROM Drive (double speed)
Laser Printer
4353 CD-ROM Bundle - An additional copy of a CD-ROM Bundle provided to Customer at $75.00/bundle
Duplicate Customer's request.
4353 CD-ROM Bundle - A CD-ROM Bundle which summarizes previously produced CD-ROM $475.00/bundle
Summary Bundles.
4354 CD-ROM Report Each data page of report information on CD-ROM which is provided .0069/data page
Data Page to Customer or to a party on behalf of Customer.
A CD-ROM Bundle, for purposes of the reports on CD-ROM services,
consists of two (2) copies, one for Customer, and one for
archive.
4352 CD-ROM Each data page of statement information on CD-ROM which is .0069/data page
Statement Data provided to Customer or to a party on behalf of customer.
Page
A CD-ROM Bundle, for purposes of the statements on CD-ROM
services, consists of three (3) copies, one for Customer, one for
archive and one for Customer's customer service representative.
n/a Chargebacks The return of a Ticket and receipt of the amount thereof from an n/a
Issuer n/a to an Acquirer or from an Acquirer to an Issuer as
provided for in the then current MasterCard and VISA rules
and regulations.
6005 Chargeback - A Chargeback where Customer initiates the Chargeback to an Acquirer 2.4899/chargeback
Outgoing in connection with a Ticket transacted by a Cardholder of Customer or
(Customer where Customer returns a Chargeback to an Issuer. The Chargeback is
Entered) processed by Customer.
6004 Chargeback - A Chargeback where Customer initiates the Chargeback to an Acquirer 4.6690/chargeback
Outgoing (FDR in connection with a Ticket transacted by a Cardholder of Customer or
Entered) where Customer returns a Chargeback to an Issuer. The Chargeback is
processed by FDR.
Exh. A -17
<PAGE>
5998 Chargeback - A Chargeback where the Issuer initiates a Chargeback to Customer in 1.500/chargeback
Incoming (Direct connection with a Ticket transacted by the Issuer's Cardholder or
Sell) where an Acquirer returns a Chargeback to Customer. A Direct Sell
Chargeback is an Incoming Chargeback which is sent directly to
Customer the same day FDR receives it for processing.
5995 Chargeback - A Chargeback where the Issuer initiates a Chargeback to Customer in 6.500/chargeback
Incoming (Manual connection with a Ticket transacted by the Issuer's Cardholder or
Entry) where an Acquirer returns a Chargeback to Customer. A Manual
Chargeback is one which is processed manually by FDR.
n/a CIMS FDR's Customer Inquiry Management System (CIMS) is an on-line n/a
system which provides the means to log, assign and track Customer
Inquiries. Under CIMS, a Customer Inquiry shall mean a request for
information received from a customer of Customer either by mail,
phone, walk-in or some other medium. A Workcase is the basic work
unit within CIMS; it represents a Customer Inquiry. Workcase Option
with Variables ("WOV") Services shall also be available under CIMS
at Customer's option.
7234 CIMS Log-Only Each Workcase that is entered into CIMS by Customer for internal .0458/workcase
Workcase reporting purposes only; no follow-up is required by Customer's
personnel.
7232 CIMS Regular Each Workcase that, for whatever reason, requires review, task .1256/workcase
Workcase completion and/or follow-up by Customer's personnel in order to
resolve a Customer Inquiry.
The average number of CIMS Regular Workcases for a month is
calculated by adding together the ending number of Regular
Workcases of month 'a' after purge plus the ending number of
Regular Workcases of the subsequent month (month'b') before
purge and then dividing the total number by 2. This calculation
will equal the averagenumber of Regular workcases processed on
the system for month 'b'.
7255 CIMS Regular Each (i) task which is performed in the resolution of a Regular .0198/item
Workcase Action Workcase or (ii) brief communication that contains directive, advisory
or informative matter stored within an Action Workcase that is entered by
Customer's personnel.
7233 CIMS WOV Each optional Workcase that sends variable information to a file for .1256/workcase
Workcase downloading to Customer. Actions may be used to establish the
specific grouping of variables that will be downloaded to Customer.
n/a CIS FDR's Customer Inquiry System (CIS) is an on-line system for storing n/a
and accessing Statement, Detail or Memo information regarding a
Cardholder Account.
2811 CIS Automated Each automatic, on-line completed adjustment or reversal of monetary .0470/adjustment
Adjustment/ detail items such as late fees, overlimit fees, item charges, finance
Approval charges, charge-off transactions and credit adjustments within
Customer Inquiry System.
n/a CIS Detail Each item of information regarding transactions that have posted or n/a
will post to a Cardholder Statement such as charges, payments, credits
and authorizations not aged off the Cardholder's file, Cardholder
payment history, and real-time authorizations.
Exh. A -18
<PAGE>
0770 CIS Detail-Other Each CIS Detail other than those specifically defined herein. .0006/detail stored
per month
2413 CIS Detail- Each CIS Detail regarding a Cardholder's payment history. .0005/detail stored
Payment History per month
2737 CIS Detail- Each CIS Detail regarding a CDA transactions which allow research .0005/detail stored
Realtime on declined authorizations and for determining pay-off balances on a per month
Authorization Cardholder Account.
5464 CIS Extended An enhancement to the standard CIS Services which provides access to .0015/statement
Service Customer Inquiry System during hours of the week in which the CIS is stored
not otherwise available for access.
0700 CIS Inquiry Each transaction accessing the Statement, Detail or Memo information .0175/transaction
in the FDR System regarding a Cardholder Account.
0780 CIS Memo Each summary item, not individually exceeding 65 positions, that is .0005/memo stored
stored with the Customer's Cardholder Account information and is per month
accessible by Customer via Customer's CRT terminals.
0760 CIS Statement Each set of statement information regarding Customer's Cardholder .0015/statement
Accounts that is stored on the FDR system and accessible by Customer stored per month
via Customer's CRT terminals. CIS Statement information includes
the information set forth on a Cardholder Statement such as, but not
limited to, the name, address, account number, statement date, payment
date, cycle days, annual percentage rates, and monthly periodic rates.
2814 CIS Transaction A reprint of information from a CIS Statement currently stored on-line .3600/register
Register which reprint is delivered to a Cardholder of Customer at Customer's
request.
n/a Client-Defined Product by which Customer may design its display screens for n/a
Screens (CDS) presentation of on-line material using multiple screen options based
upon its needs.
5402 Client-Defined Each CDS Screen developed by Customer for general use. $65.00/screen
Screens - Screen
Set-Up
5403 Client-Defined Each change made by Customer to an existing CDS Screen. $50.00/screen
Screens - Screen
Revision
2710/ Client-Defined Each on-line transaction entered by Customer using a CDS Screen. .0030/transaction
2726 Screens - This charge is in addition to any other applicable monetary, non-
Transaction monetary or on-line transaction charge which may apply with respect
to the transaction type.
3534 Commercial A list of vendors for which Cardholders utilizing a Customer issued .0780/average number
Vendor List Commercial Card may present the Commercial Card for payment. of vendors on file
per month
2744 Common The fee associated with the point-of-sale authorization of a transaction .0112/inquiry
Authorization to an account of Customer by a third party where notice of such
authorization is delivered to FDR via a transmission medium from the
third party.
Exh. A -19
<PAGE>
2813 Company Card The preparation of each set of reports prepared for mailing in the USPS .3300/set of reports
Service Mail to a company designated by Customer in connection with those
Preparation services provided by FDR in order to support commercial card
accounts of Customer. For purposes of this Agreement, a set of reports
shall mean all reports of a single company which are placed in a single
envelope for mailing.
2820 Convenience Periodic downloading and transmission of Cardholder account data to a .0500/account
Check third party vendor selected by Customer for the production of
convenience checks.
6607 CPU Authorization Each authorization inquiry received in FDR protocol via a computer to .0245/inquiry
Inquiry computer (CPU-to-CPU) interface between FDR's computer and the
computer of Customer or Customer's Merchant.
6612 CPU Authorization Each CPU Authorization Inquiry where the Cardholder's Personal .0245/inquiry
Inquiry With PIN Identification Number (PIN) is verified during the authorization
Verification process.
6610 CPU Leased Line Each computer to computer authorization inquiry received from a .0245/inquiry
Authorization Merchant of Customer via a leased line.
Inquiry
6615 CPU Remote Local Each computer to computer authorization inquiry received from a .0245/inquiry
Authorization Merchant of Customer via a CRT.
Inquiry
2821 Credit Balance Periodic downloading and transmission of Cardholder account data to a .0500/account
Refund Check third party vendor selected by Customer for the production of credit
balance refund checks.
7278 Custom Fee Each fee assessed to a Cardholder Account of Customer in connection Quote/fee assessed
Processing - Fee with FDR's Custom Fee Processing system, whereby Customer is able
Charged to set up and run multiple fee programs at the Cardholder level,
controlling the amount, timing and communication intervals of fees
to be charged to the Cardholder for various programs such as service
fees, product enrollment fees, purchase fees, special plastic fees
and group/ organization recurring dues or purchases.
Daily Rewards The product by which rewards from Customer's rewards program(s) Quote/Cardholder
Calculation which are due a Cardholder are calculated and made available on a Account per day with
daily basis to the Cardholder Account. The service is billed on the activity
basis of which Cardholder Accounts had a reward(s) earned on a
particular day.
0147 Delinquency A brief notification to a Cardholder of Customer prepared by FDR's .0450/notice
Notice computer at the request of Customer based upon Customer's Product
Control File or a CRT entry request made by an employee of Customer
which addresses a delinquency with respect to the account.
2553 Delinquency An alternative form to the delinquency notice, which form notifies a .0450/statement
Statement Cardholder of Customer of a past-due amount.
0155 Dual Cardholder A Cardholder Statement which includes information on both .1040/statement
Statement MasterCard and VISA account activity.
2819 EAPS Credit Each application which is automatically scored for credit worthiness .1000/application
Scored Account according to Customer selected parameters.
Exh. A -20
<PAGE>
n/a Emergency Services performed by FDR on behalf of Customer for a Cardholder of n/a
Services Customer. FDR shall perform emergency cash authorization services
and, when authorized by Customer, coordinate the creation and
delivery of replacement card(s).
2776/ Emergency Service Each monthly Cardholder Account on File which is entitled to receive .0026/Cardholder
7019 - File Processing Emergency Service. Account on File per
month
2775/ Emergency Service Each Cardholder Account on File which is loaded to the FDR System Quote/Cardholder
7018 - One-Time Start- in connection with the Emergency Service. Account on File
Up Fee
7243 Enhanced Annual Each Cardholder Annual Activity Summary (as defined herein) which
Summary utilizes Enterprise Presentation style statement printing features.
Customer may elect to use either a standard or customized format.
Additional charges will apply for the creation of any logos or personalized
letters in excess of one (1), and if Customer elects to utilize customized
Enhanced Annual Summaries.
.8000**
0 - 10,000 .7500
10,001 - 50,000 .7000
50,001 - 100,000 .6500
100,001 - 250,000 .6000
250,001 - over /summary
n/a Enterprise Each Cardholder Statement produced by FDR on behalf of Customer n/a
Presentation utilizing the Enterprise Presentation feature. Enterprise Presentation is
Cardholder the system which allows Customer the flexibility to electronically
Statement arrange the statement form (including payment coupon placement),
create and place logos and graphics and select from numerous font types and
sizes on the Cardholder Statement. Customer understands and agrees that
Enterprise Presentation Cardholder Statement data may only be stored for
archival use on CD-ROM.
7197 Enterprise Each first physical page of an Enterprise Presentation Cardholder .0300/first page
Presentation CH Statement which is printed in duplex mode.
Statement-Duplex
First Page
7199 Enterprise Each physical page after the first physical page of an Enterprise .0300/page
Presentation CH Presentation Cardholder Statement which is printed in duplex mode,
Statement-Duplex excluding any U$AVE offer page (if applicable).
Subsequent Page
7196 Enterprise Each first printed page of an Enterprise Presentation Cardholder .0300/first page
Presentation CH Statement which is printed in simplex mode.
Statement-Simplex
First Page
7198 Enterprise Each printed page after the first page of an Enterprise Presentation .0300/page
Presentation CH Cardholder Statement which is printed in simplex mode, excluding any
Statement-Simplex U$AVE offer page (if applicable).
Subsequent Page
Exh. A -21
<PAGE>
0280 ETC Batch Header Each electronic summarization of ETC Ticket transactions deposited .0325/header
by Customer or Customer's Merchant and delivered to FDR.
0260 ETC Confirmation Each daily report prepared by FDR for use by Merchant of Customer .2000/letter
to confirm all Ticket transactions received from Customer's Merchant
and processed the previous day via Electronic Ticket Capture (ETC) or
tape. Service includes any preparation required for delivery. ETC is
FDR's proprietary product for electronic data capture at the point of
sale.
2573 ETC Deposit Each weekly report sent to a Merchant of Customer confirming each .5000/summary
Summary deposit made during the week by such Merchant. Service includes any
preparation required for delivery.
0262 ETC Headquarters Each daily or weekly report sent to a headquarters' location of a .1200/report
Report Merchant of Customer's, which contains ETC or tape transaction
information for its individual Merchant location(s). Service includes
any preparation required for delivery.
0270 ETC Ticket Each Electronic Ticket Capture (ETC) sales slip, cash advance slip or .0325/item
returned merchandise slip from a Merchant of Customer that is
captured by means of an electronic process and forwarded to FDR for
processing and reporting.
2480 ETC Ticket - Each paper copy of an ETC Ticket received from an ETC Ticket or .0200/item
Storage tape Merchant of Customer and stored by FDR. In no event shall FDR
be responsible for Tickets not received in any batch from a Merchant
of Customer.
7026 Excessive Each Cardholder Account of Customer for which FDR performs an .5538/account
Transaction examination of data in connection with the excessive use of the
Monitoring Transaction Card. FDR shall review all items that qualify as
excessive, and examine activity on previous statements, a Cardholder's
normal spending habits and payment history.
7031 Excessive Each Cardholder Account of Customer for which FDR personnel, in 6.0408/account
Transaction connection with Excessive Transaction Monitoring, research and verify
Research transactions warranting further review, and if fraud is involved, the
account will be statused.
0675 FDR Entered New Each Cardholder new account transaction which is entered by FDR .2500/transaction
Account personnel.
Transaction
0670/ FDR Entered Non- Each Cardholder non-monetary transaction which is entered by FDR .1268/transaction
0137 Monetary personnel.
Transaction
4320 FDR LinkUp The one-time set-up charges associated with each mailbox utilized by $100.00/mailbox
Service - Set-Up Customer to receive and send electronic mail from and to FDR.
Fee
4321 FDR LinkUp The monthly charges associated with maintaining each mailbox $15.00/mailbox per
Service - Service utilized by Customer to receive and send electronic mail from and to month
Fee FDR.
Exh. A -22
<PAGE>
0144 First Activity A brief notification to a Cardholder of Customer prepared by FDR's .0450/notice
Notice computer at the request of Customer based upon Customer's Product
Control File or a CRT entry request made by an employee of Customer
which addresses the first use of the new account.
0604 First Class Mail - Each Delinquency Notice which is prepared by FDR for delivery to the .0850/notice
Delinquency USPS for mailing.
Notice
2666 First Class Mail - Each Delinquency Statement which is prepared by FDR for delivery to .0850/notice
Delinquency the USPS for mailing.
Statement
0605 First Class Mail - Each ETC Confirmation Letter which is prepared by FDR for delivery .0850/letter
ETC Confirmation to the USPS for mailing.
Letter
0603 First Class Mail - Each First Activity Notice which is prepared by FDR for delivery to .0850/notice
First Activity the USPS for mailing.
Notice
2746 First Class Mail - Each Merchant Statement which is prepared by FDR for delivery to the .0850/statement
Merchant United States Postal Service ("USPS") for mailing.
Statement
0149 First Class Mail - Each item other than those specifically defined herein. .0850/item
Other
0601 First Class Mail - Each Cardholder Statement which is prepared by FDR for delivery to .1000/statement
Cardholder the United States Postal Service ("USPS") for mailing.
Statement
n/a Fraud Detail The FDR on-line system which provides Customer with the ability to: N/a
Screen Services (i) track fraudulent Transaction Card activity using certain on-line
screens, (ii) make on-line entries which generate adjustments,
retrievals, chargebacks and affidavits, and (iii) have certain
transactions automatically charged back (including but not limited
to the non-receipt of a requested item from an Acquirer) by the FDR System.
2777 Fraud Detail Each transaction (2 transactions are required in order to generate a .5486/transaction
Screen Transaction single adjustment) entered on-line using FDR's Fraud Detail Screens in
- Adjustment order to generate an adjustment to an account.
2755 Fraud Detail Each transaction entered on-line using FDR's Fraud Detail Screens in 2.7433/transaction
Screen Transaction order to generate an affidavit regarding an account.
- Affidavit
2782 Fraud Detail Each transaction entered on-line using FDR's Fraud Detail Screens in 1.3715/transaction
Screen Transaction order to generate a Chargeback.
- Chargeback
2781 Fraud Detail Each transaction entered on-line using FDR's Fraud Detail Screens in .8228/transaction
Screen Transaction order to generate a Retrieval.
- Retrieval
Exh. A -23
<PAGE>
7982 Fraud Any Cardholder Account routed to the FDR Fraud Detection 2.0521/actioned
Management/ WorkCenter queue group and called using a manual dialing process account
Fraud Detection that results in any one or more of the following activities in a single
(Falcon) Services - 48-hour period: outgoing/incoming Cardholder phone calls with a
Call Processing - maximum of 4 attempts within any single 48-hour period, CIS Memos,
Manual Review/ Letter generation or account statusing.
Dialing)
7980 Fraud Any account routed to the FDR Fraud Detection WorkCenter queue 2.0521/actioned
Management/ group and called using a predictive dialer which results in any one or account
Fraud Detection more of the following activities in a single 48-hour period:
(Falcon) Services - outgoing/incoming Cardholder phone calls with a maximum of 4
Call Processing - attempts within any single 48-hour period, CIS Memos, Letter
Predictive Dialer, generation or account statusing.
Domestic)
7919 Fraud Each Cardholder Account processed through the Falcon system
Management/ which Account had a balance or any monetary posting
Fraud Detection for the month billed, as determined by FDR for Customer.
(Falcon) Services -
Monthly Gross Number of Monthly Gross Active Credit Card
Active Credit Card Accounts For The Month
Account 0 - 599,999 .0526**
600,000 - 999,999 .0479
1,000,000 - 1,999,999 .0459
2,000,000 - 2,999,999 .0439
3,000,000 - 4,999,999 .0419
5,000,000 - over .0409
/gross active account
on file per month
0512 Fraud Research FDR's security department provides the following functions for .0550/Lost or Stolen
and Investigation Customer's Lost or Stolen accounts: (i) Lost/Stolen account research, Report
Services (ii) Cardholder interviews, (iii) adjustments, (iv) chargebacks, (v)
retrievals, and (vi) fraud and counterfeit reporting. In addition,
FDR's security department provides investigation of fraudulent
activity regarding a Cardholder Accounts of Customer by means of FDR's
nationwide investigative network. This service is billed on a per
Lost or Stolen Report basis.
7947 Fraud Return Each record of a fraudulent Cardholder Account of Customer which is .0600/record
Records in FAR rejected and returned by MasterCard; such accounts are placed in the
Queue FDR Fraud Account Returns ("FAR") queue for review and disposition
by Customer.
Greater Than Six The FDR product by which each Cardholder of Customer is allowed up Quote/Cardholder
Rewards to fifty (50) rewards programs attached to their Cardholder Account. program in excess
Functionality Customer is billed for every rewards program attached to a Cardholder of 6
Account in excess of six (6). Customer also has the ability to have
one rewards ID drive to 200 rewards programs.
Exh. A -24
<PAGE>
n/a Hot Call An authorization request from a Merchant on a lost, stolen or credit
problem account. Hot Calls on a Voice or ARU Inquiry are N/a
automatically transferred; POS or CPU Inquiries require a second
Merchant call.
7004 Hot Call - Card Each Hot Call where the Cardholder Account is statused as credit
Pickup related. FDR will instruct the Merchant to pick up the card. 6.4120/call
7021 Hot Call - Code 10 Each Positive ID Check or other Hot Call in which the use of the 13.8934/call
Transaction Card is suspected of being fraudulent or counterfeit.
7013 Hot Call - Positive Each Hot Call where an authorization attempt exceeds Customer's 3.2058/call
ID Check predetermined parameters. The presenter of Customer's card is
checked for positive ID and the card is checked for counterfeiting.
Positive ID checks can be initiated for: (i) excessive activity
(number of transactions and/or dollar amount) per account per day,
(ii) first use of a new or reissued card exceeding a specified amount,
and/or (iii) excessive dollar amount for a single purchase as
specified by Customer.
7003 Hot Call - Each Hot Call where the Cardholder Account is statused Lost or 13.8934/call
Lost/Stolen Stolen. FDR will instruct the Merchant to pick up the card and, at
Customer's option based upon predefined criteria, FDR shall investigate
and dispatch the police to the Merchant location.
n/a ICS (Issuer's The system whereby FDR processes and submits to the Issuer's N/a
Clearinghouse Clearinghouse Service (ICS), on behalf of Customer, information
Services) concerning potential and existing Cardholders in accordance with the
operating regulations of MasterCard and VISA. Anything in this Agreement
to the contrary notwithstanding, it is understood and agreed that FDR's
sole responsibility under the ICS services is to provide electronic data
processing services to Customer in connection with Customer's use of the
ICS. FDR shall not be responsible for and assumes no responsibility for: (i)
any damages, losses or liabilities whatsoever arising out of the use by
Customer of the ICS data bases, including any liability or obligation of
Customer arising out of or related to its compliance with the Fair Credit
Reporting Act or any other applicable federal, state or local law or ordinance;
(ii) the accuracy of any information supplied by Customer to the ICS
or for any verification of such information based upon reports provided to
Customer through the ICS; and (iii) Customer's compliance with the operating
regulations of MasterCardand VISA with respect to the ICS service.
IN ADDITION, Customer UNDERSTANDS THAT FDR DISCLAIMS ALL
WARRANTIES WITH RESPECT TO THE USE AND OPERATIONOF THE
ICS, BOTH EXPRESS AND IMPLIED, INCLUDING BUT NOT LIMITED
TO ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS
FOR ANY PARTICULAR PURPOSE.
2581 ICS - On-Line An inquiry into FDR's ICS on-line files utilizing FDR's ICS on-line .0150/transaction
Transaction transactions by an employee of Customer via Customer's CRT
terminals.
Exh. A -25
<PAGE>
2574/ ICS - Transmission The transmission to MasterCard and VISA of selected information of .0050/account
2575/ Load each Cardholder of Customer which either: (i) has applied for a
2576/ MasterCard or VISA Transaction Card; or (ii) has experienced
2577/ unauthorized usage of its MasterCard or VISA Transaction Card, all in
2578/ accordance with the operating regulations of MasterCard and VISA.
2579/
2580
0101/ Incoming Each Ticket (sales slip, cash advance slip or returned merchandise slip) .0200/item
0115 Interchange Ticket transacted by Customer's Cardholders at any Merchant with a BIN,
ICA or other Transaction Card system identification number other than
the number to which the Cardholder is signed.
InfoSight Services FDR agrees to update, on a monthly basis, certain selected fields of the
master files of Customer, and to provide Customer with certain master
file data warehousing, historical retention and related services in
connection with Customer's Cardholder Accounts. Such files may be
selected at the system and/or system principal level of the FDR
System. InfoSight Services allow Customer to (i) collect and access
current and historical master file data and to integrate such data with
external data such as demographic/household data, (ii) segment
portfolios and perform precision targeting of individual Cardholders
and segments, (iii) plan, execute and evaluate multiple, frequent
marketing programs and (iv) other promotional related services. FDR
agrees to provide Customer with dial-up access to such files each
business day of the week. The hours of access during such business
days shall be 7:00 a.m. to 7:00 p.m. Central Time Zone. FDR agrees
to provide customer service support to Customer in its use of such
services provided by FDR. The amount and type of customer service
support shall be that which FDR determines is reasonably necessary in
its exercise of good faith business judgment. FDR shall, at Customer's
request, provide training, consulting, computer programming and other
services in connection with the InfoSight Services at FDR's then
current standard rates for such training, consulting and computer
programming, as such rates are quoted to Customer by FDR upon request.
Cardholder Program:
-------------------
Quote
-Initial Start-Up
5600 -Monthly On-Line Access Per Table ($500 minimum per month)* .0210/account
First 100,000 accounts .0125/account
100,001 - 500,000 accounts .0057/account
Additional accounts beyond 500,000
5612 -Monthly Update of File Per Table ($2,850 .0120/account
maximum per month)* 700.00 plus .0035/
80,000 and fewer accounts account
Over 80,000 accounts
Exh. A - 26
<PAGE>
Merchant Program:
-----------------
-Initial Start-Up Quote
5603 -Monthly On-Line Access Per Table* 300 plus .0270/
account
5602 -Monthly Update of File Per Table ($75 minimum per month)* .0100/account
STATS:
------
5613 -Initial Start-Up Quote
5614 -Monthly On-Line Access ($25.00 minimum per month)** 25.00/megabyte
-Monthly File Load 120.00
Product Control File:
---------------------
-Initial Start-Up Quote
5604 -Monthly On-Line Access 100.00 plus 15.00/
100 agents
5604 -Monthly File Load 400.00
*Subject to thirty percent (30%) discount during the Term of this
Agreement.
**Based upon actual amount of disk space used. Size approximations
are available upon request.
5617 InfoSight Services The retention of historical masterfile and transaction data at detail level Quote
- Historical on non-disk media.
Retention
3025 Insert Any advertising or other item of information not contained on a .0104/insert
Cardholder Statement, which item is mailed along with the Cardholder
Statement; inserts required by state or federal law do not apply.
5397/ Interface Services - Each receipt of data by FDR from Customer or a third party designated $25.00/tape
5399/ Magnetic Tape by Customer or each forwarding of data to Customer or a third party
5400/ Handling designated by Customer from FDR via mailed or courier delivered
5401 magnetic media including, but not limited to, diskettes and magnetic
tapes.
5086/ Interface Services - Each transmission to, or receipt by, FDR of Customer's data via a 4.800/transmission
5088/ RJE/NDM central processing unit to central processing unit transmission using
5090/ Remote Job Entry or Network Data Mover (RJE or NDM).
5091
5095/ Interface Services - Each transmission to, or receipt by, FDR of Customer's data via a $12.00/transmission
5097/ Tape to Tape central processing unit to central processing unit transmission using a
5098/ tape to tape interface.
5099/
5100
Exh. A - 27
<PAGE>
5412 IRS Home Equity Each Internal Revenue Service (IRS) Form 1098 prepared by FDR's 1.2500/form
Form (1098) computer, in accordance with the Customer's Product Control File
settings or terminal entry made by Customer, printed and mailed to
Customer's Cardholder. Service includes creation of a tape for
Customer's reporting of Cardholder information to the IRS.
2771 Letter Each letter prepared by FDR's computer, in accordance with .1437/letter
Customer's Product Control File settings or CRT entry requests made
by employees of Customer. Each such Letter shall have on-line
composition and editorial features and options including signatures,
logos, multiple type faces and additional page letter generation.
Service includes any preparation required for delivery.
2773 Letter - Additional Each printed output on the reverse side of a Letter (duplex printing) or .0850/printed page
Page each side of each sheet of 8 1/2" by 11" 24 lb. bond stock
accompanying a Letter.
2849 Letter - Certified Each Letter, with or without Letter Insert, which is handled separately 1.500/letter
Mail Handling from Customer's first class mailings to provide certified delivery of
said item. This does not include postage.
2772 Letter - Duplex Each Letter for which printing is made on the back of the initial page .0850/letter
Printing and any additional pages.
2860 Letter - Group Each individual or set of Letters prepared by FDR's computer, in .0850/item
Samples accordance with Customer's Product Control File settings or CRT entry
requests made by employees of Customer, which is printed and mailed to
Customer in a draft format for Customer's review and approval.
5323 Letter - Insert Each inserting of advertising or other item of information .0157/insert
not contained on a Letter, including but not limited to generic reply
envelopes, into a windowed envelope containing a Letter.
2848 Letter - Each Letter which is provided with a perforation for detachment. .0300/letter
Perforations
2774 Letter - Priority Each Letter, with or without Letter Insert, which is handled separately .1063/letter
Mailing from Customer's first class mailings to provide next day delivery of
said item.
5321/ Letter - Set-up, Each addition, deletion or change, performed by FDR on behalf of $32.50/half hour
5322/ Revision or Customer, of a Customer's Letter format or inputs including but not
5324 Deletion limited to digitized signatures and logos of Customer.
0293 Lost or Stolen Each report of a lost or stolen Transaction Card from the Cardholder of 6.4120/report
Report - FDR Customer which is processed by FDR's Fraud Management Voice
Entered Operations. Reports entered on-line immediately change the external
status and block authorization requests on the Cardholder Account.
Service includes lost/stolen reports received via collect call,
telegram and telex.
5778 MASS Set-Up/ The initial Merchant Analysis Support System ("MASS") product set- $500.00/set-up or
Modification up or each modification to the initial set-up requested by Customer. In modification
addition to the fee for MASS Set-Up/Modification, Customer will also pay
FDR at FDR's then current standard rates for any onsite training performed
by FDR on behalf of Customer in connection with the MASS service.
5779 MASS Monthly The monthly delivery of the MASS software to Customer as otherwise $1500.00/database
Creation described in this Agreement. With respect to the billing of the
monthly creation charge per database, a database shall mean a datafile
containing Mass-specific data for each Merchant within the system/prin
combination(s) selected by Customer. Two databases otherwise containing
the same information but with different system/prin combinations would
count as two databases.
Exh. A - 28
<PAGE>
5782 MASS Duplicate The charge for duplicate or replacement copies of a MASS database. $75.00/additional
Copy This applies if Customer wants multiple copies of the same database or copy
a replacement for a database previously created.
5710 Mastercom CSD - Each page of Chargeback documentation received by FDR from a 2.000/page
Receiving MasterCard member through the Mastercom CSD service on behalf of
Customer.
5709 Mastercom CSD - Each Chargeback record which is sent from FDR through the 3.290/chargeback
Sending Mastercom chargeback support documentation ("CSD") service on
behalf of Customer.
5711 Mastercom Image Each message image sent to a MasterCard member through the 2.000/message image
Mail Mastercom CDS service.
n/a Mastercom/VISA The Mastercom/VISA RFC workstation, modem, scanner and n/a
Request For Copy proprietary system developed by MasterCard/VISA to enable the
("RFC") System storage and transfer of documents as electronic images for retrieval
purposes.
1570 Mastercom/VISA Following receipt by FDR of a request on the Mastercom/VISA RFC 3.300/retrieval
RFC Acquirer System for a facsimile of a Ticket previously acquired by Customer
External Retrieval and stored away from FDR's premises, FDR will (a) mail a request to
the custodian of the Ticket and (b) utilizing a Mastercom/VISA RFC
workstation located at FDR's premises forward an image of such Ticket
to the requesting party.
1571 Mastercom/VISA Following receipt by FDR of a request on the Mastercom/VISA RFC 3.300/retrieval
RFC Acquirer System for a facsimile of a Ticket previously acquired by Customer
Internal Retrieval and stored at FDR, FDR will retrieve the Ticket or a facsimile thereof
and forward an image of such Ticket to the requesting party utilizing
a Mastercom/VISA RFC workstation located at FDR's premises.
1572 Mastercom/VISA FDR will (a) receive, via a Mastercom/VISA RFC workstation located 3.300/retrieval
RFC Issuer at FDR's premises, a copy of a Ticket image previously requested from
Retrieval an Acquirer by Customer or a notification from MasterCard/VISA that
the Acquirer has failed to return a Ticket image within the time period
permitted by MasterCard/VISA rules, (b) mail a copy of the Ticket image
or notification to Customer and (c) transmit Customer's acceptance or
rejection of each Ticket to MasterCard/VISA following receipt of Customer's
written instructions on acceptance or rejection of such Ticket.
Exh. A - 29
<PAGE>
2874 Merchant 12B A letter sent directly to a Merchant of Customer requesting a Retrieval. .7500/letter
Letter
0504 Merchant Account Each account of a Merchant of Customer that remains on Customer's .5000/account on file
on File masterfile at FDR on the last processing day of the calendar month as per month
defined on the MM-101 Merchant Profitability report or an equivalent.
0209 Merchant Advice Monthly tape indicating Automated Clearing House (ACH) discount $62.50/tape
of Charge (ACH) amounts with respect to a Merchant of Customer.
Tape
2842 Merchant The on-line storage of summaries for pending Incoming Chargebacks .0500/chargeback
Chargeback posted to Merchant Accounts for access by employees of Customer. stored per month
Summary Screen
5420 Merchant Each Letter to a Merchant of Customer prepared by FDR's computer at .1800/letter
Computer Letter the request of Customer based upon Customer's Product Control File or
CRT entry requests made by employees of Customer. Each such Letter shall
have on-line composition and editorial features and the option of multiple
page letter generation. This service includes any preparation required for
delivery.
5422 Merchant Each printed output on the reverse side of a Merchant Computer Letter .0800/page
Computer Letter - (duplex printing) or each side of each sheet of 8 1/2" by 11" 24 lb.
Additional Page bond stock accompanying a Merchant Computer Letter.
5425 Merchant Each Merchant Computer Letter, with or without Merchant Letter Quote/item
Computer Letter - Insert, which is handled separately from Customer's first class mailings
Certified Mail to provide certified delivery of said item. This does not include
Handling postage.
5424 Merchant Each individual or set of Merchant Computer Letters prepared by Quote /item
Computer Letter - FDR's computer, in accordance with Customer's Product Control File
Group Samples settings or CRT entry requests made by employees of Customer, which
is printed and mailed to Customer in a draft format for Customer's
review and approval.
5421 Merchant Each inserting of advertising or other item of information not contained .0150/insert
Computer Letter - on a Merchant Computer Letter, including but not limited to generic
Insert reply envelopes, into a windowed envelope containing a Merchant
Computer Letter.
5426 Merchant The printing of Customer's Merchant Computer Letters on perforated Quote /item
Computer Letter - paper.
Perforations
5423 Merchant Each Merchant Computer Letter, with or without Merchant Letter Insert Quote /item
Computer Letter - which is handled separately from Customer's first class mailings
Priority Mailing to provide next day delivery of said item.
Exh. A - 30
<PAGE>
0259 Merchant Each Merchant which is set up to receive, via electronic transmission, $50.00/merchant
Electronic a file containing daily and weekly Merchant deposit activity
Reporting confirmations and reports.
1414/ Merchant Hot Call Each Hot Call from a Merchant of Customer in connection with a non- 4.3894/call
1415 FDR processed financial institution's Transaction Card for which FDR
takes a Hot Call report.
2533 Merchant Inquiry The accessing of the Merchant or Batch Records contained in the FDR .0255/inquiry
System ("MIS") System regarding a Merchant Account.
Inquiry
2394 Merchant Inquiry The storage of information on a Merchant Account such as but not .0151/merchant record
System ("MIS") limited to the name, address, Merchant number, volumes, processing
Merchant Record control flags and any other information which can be stored for display
Stored and accessed by an Inquiry.
2395 Merchant Inquiry The storage of each month-to-date Merchant batch record for inquiry. .0002/batch record
System ("MIS")
Month-To-Date
Batch Record
Stored
0097 Merchant Inquiry The storage of each Merchant batch record, from months prior to the .0002/batch record
System ("MIS") current month, for inquiry.
Previous Month's
Batch Record
Stored
0160 Merchant Non- Each non-monetary transaction or new account related to Customer's .1500/transaction
Monetary/On-Line Merchant which is entered by FDR on Customer's behalf.
Transaction - FDR
Entered
2843 Merchant Retrieval The on-line storage of summaries for pending Retrieval requests for .0040/retrieval
Summary Screen access by employees of Customer. stored per day
2745 Merchant Each periodic summarization of activity (whether printed or otherwise) .3150/statement
Statement associated with a Merchant Account of Customer. Service includes
any preparation required for delivery.
0073 Merchant Ticket - Each sale slip, cash advance slip or returned merchandise slip .0325/item
CRT Entry ("Ticket") from Customer's Merchant that is transacted by a Cardholder
from any Bank Identification Number (BIN), Interbank Card Association
(ICA) or other Transaction Card system identification number, and
entered remotely from Customer's terminal(s) by Customer or a third party
acting on Customer's behalf.
0084 Merchant Ticket - Each sale slip, cash advance slip or returned merchandise slip .1500/item
Manual Entry ("Ticket") from Customer's Merchant that is transacted by a Cardholder
from any Bank Identification Number (BIN), Interbank Card Association
(ICA) or other Transaction Card system identification number and entered
by FDR on Customer's behalf.
0063 Merchant Ticket - Each sale slip, cash advance slip or returned merchandise slip .0325/item
Tape Entry ("Ticket") from Customer's Merchant that is transacted by a Cardholder
from any Bank Identification Number (BIN), Interbank Card Association (ICA)
or other Transaction Card system identification number, and entered via
magnetic tape or tape transmission to FDR by Customer or a third party
acting on Customer's behalf.
Exh. A - 31
<PAGE>
2829 MTT Screen Detail Each Merchant ACH deposit activity record which is stored by FDR .0003/record
Storage for on-line viewing.
7276 National Change of The periodic updating of Customer's Cardholder Account addresses in
Address (NCOA) compliance with United States Postal Service ("USPS") requirements.
System The FDR System will, once every six (6) months, electronically update
the addresses of all of Customer's Cardholder Accounts using
information filed with the USPS and, at Customer's option, either (i)
provide Customer with reports from which Customer may enter the necessary
non-monetary transactions to update Customer's Cardholder master files on
the FDR System, or (ii) automatically generate and enter the necessary
non-monetary transactions to update Customer's Cardholder master files on
the FDR System.
Monthly Volume 3.7500**
0 - 50,000 3.2500
50,001 - 800,000 2.7500
800,001 - 1,000,000 2.2500
1,000,001 - over /1,000 accounts
2832 Non-Receipt CIS The automatic generation of a Customer Inquiry System (CIS) Memo .2500/memo
Memo Line line when an automatic non-receipt Chargeback is generated on behalf
Generation of Customer.
2830 Non-Receipt The deletion of a transaction from FDR's dispute system (in connection .2500/item
Dispute Removal with a Cardholder Account of Customer) as a result of an automated
non-receipt chargeback.
5015 Non-Standard Job Each scheduled daily, weekly or monthly production of a data set on $50.00/data set
Run behalf of Customer that is in addition to the standard data outputs
produced by the FDR System.
7943 NRI Returned Each record of a Cardholder Account of Customer which is sent to .0600/record
Records in Queue MasterCard and VISA as Not Received as Issued (NRI); such accounts
are placed in a queue for review and disposition by Customer.
2743 On-Line Check Re- Periodic downloading and transmission of Cardholder account data to a .0500/account
Order third party vendor selected by Customer for the production of check re-
orders.
2408/ On-Line Credit The transmission by Customer of credit application or existing account .4579/request
2729/ Bureau Report information via video display terminals at Customer's location to any
2730 Request of the supported principal credit bureaus with which Customer has
established a written relationship that is in effect at all times during
the term of this Agreement in order to determine the credit worthiness
of an applicant/account. Anything in this Agreement to the contrary
notwithstanding, in the event that Customer's relationship(s) with all of
the principal credit bureaus supported pursuant to this Agreement should be
terminated at any time during the term of this Agreement, then FDR's
obligation to provide On-Line Credit Bureau Report Requests shall
automatically be terminated, without penalty or financial obligation of any
type or kind to FDR, on the effective date of the termination of Customer's
relationship(s) with such principal credit bureaus.
Exh. A - 32
<PAGE>
2756 On-Line Detail The daily, on-line retention of security detail records (monetary items .0100/item per day
Storage posting to a Lost or Stolen Account) from the Security Detail
Transaction ("SDT") File.
2757 On-Line Fraud The daily, on-line retention of security detail records (monetary items .0030/item per day
Total Storage posting to a fraud Account) from the Fraudulent Account Information
("FAI") Screen.
2810 On-Line Telephone The automatic update of a telephone number on Customer's Cardholder .2500/update
Number Update masterfile at FDR which is caused by an update of the same telephone
number via a "SL" transaction in connection with a Lost/Stolen Report.
0099/ On-Line Each entry of information or inquiry into the computer records of .0075/transaction
0135/ Transaction Customer and its Cardholders by an employee of Customer by the use
0136/ of a terminal located at Customer's office or via tape or other method
2036 of transmission.
2823 On-Line Warning The daily, on-line retention of Customer's Cardholder Accounts .0100/account per day
Bulletin Storage contained on the Combined Warning Bulletin File.
7413 Online Access and Each page of Reports Management System (RMS) reports which is .0087/page
Retrieval System stored by FDR for on-line viewing and printing by Customer's
(OARS) Services personnel. Storage of data by FDR shall be for a period of sixty (60)
days. Customer, at its option, may elect to utilize any or all of the
OARS Services and/or CD-ROM Services for the same RMS reports.
Notwithstanding anything in this Agreement to the contrary,
Customer is responsible for determining the acceptance
of the OARS Services and the technology to be used under this
Agreement to provide the OARS Services under state and Federal
regulations, including but not limited to signature verification
and the admissibility of documents into evidence. It is Customer's
responsibility to keep records on other media, if such are
required under state and Federal regulations because of the limited
acceptance or admissibility of the OARS Services or the technology
to be used under this Agreement to provide the OARS Services.
0126 Payment - CRT Posting, from a CRT transmission delivered to FDR by Customer, of a .0090/payment
Entry by Customer transaction to a Cardholder Account of Customer evidencing the
receipt of money from a Cardholder.
0127 Payment - Manual Posting, from a payment stub provided to FDR by Customer, of a .1268/payment
Stub Entry by FDR transaction to a Cardholder Account of Customer evidencing the
receipt of money from a Cardholder.
0125 Payment - Tape Posting, from a tape medium delivered to FDR by Customer, of a .0090/payment
Entry by Customer transaction to a Cardholder Account of Customer evidencing the
receipt of money from a Cardholder.
n/a PC Remote Access Product by which Customer may access the FDR System via a n/a
Service personal computer at Customer's office in order to allow employees of
Customer to perform certain terminal functions, including but not
limited to the accessing of Cardholder or Merchant Account data, the
entry of information concerning Customer's Accounts and the
uploading/downloading of data regarding Customer's Accounts.
Exh. A - 33
<PAGE>
7407 PC Remote Access Each minute of access time that Customer's user is connected to the $120.00/user plus the
Minutes PC Remote Access bulletin board system. price below per user
per minute in excess
of 500 minutes per
month
1st 500 minutes $120.00
501 - 750 .2400
751 - 1,250 .2100
1,251 - 1,500 .1900
1,501 - over .1800
PC Remote Access Each instance in which information is uploaded to the FDR System by Quote/upload or
-Upload/Download Customer or made available by FDR for downloading to Customer download
upon cycle completion.
6623/ PIN Verification - Each verification of the Personal Identification Number (PIN) of the .0233/inquiry
6626/ Cardholder Inquiry Cardholder during a Cardholder Authorization Inquiry
6629
2411 PINpoint Inquiry Each transaction selection (more than one selection may be made .3647/inquiry
during a call) made by a Cardholder of Customer which accesses the
Cardholder's account records for selected information by the use of a
touch-tone telephone.
4111/ PlastiCard Agent/ Each instance in which a change is made to any or all of (i) Customer's 4.500/change
4112 Strategy Inserting system level (if system level billing for set-ups is required), (ii)
Set-Up Customer's prin level (if prin level billing for set-ups is required),
(iii) the envelope, (iv) inserts, (v) mail integration, (vi) multi/foreign
flag and/or (vii) mail code in connection with Customer's plastic cards.
4102 PlastiCard Braille Each plastic card for which FDR has embossed Braille characters on $50.00/plastic
Embossing the front of the plastic.
7634 PlastiCard Bulk The separation from the production run of accounts from individual .1600/carrier
Packaging - 5 Digit systems, principals, agents or grouping of zip codes. Includes sorting
Sort to a 5-digit level.
7633 PlastiCard Bulk The separation from the production run of accounts from individual .1200/carrier
Packaging - 3 Digit systems, principals, agents or grouping of zip codes. Includes sorting
Sort to a 3-digit level.
7625 PlastiCard Bulk The separation from the production run of accounts from individual .0690/carrier
Packaging - Basic systems, principals, agents or grouping of zip codes.
Sort
7687 PlastiCard Card The application of a clear laminate overlay placed over the entire card, Quote/side/plastic
Laminate Overlay protecting the PlastiCard Ultragraphics BIN number.
4101 PlastiCard Card Each affixation of a sticker to each embossed plastic in a Customer .0623/plastic
Activation Cardholder embossing run; a generic sticker is included at no
Labeling additional charge.
4218 PlastiCard The calculation and encoding and/or indent printing of the VISA Card 0100/calculated value
CVV/CVC Verification Value (CVV) or MasterCard Card Validation Code
Verification (CVC).
Generation
Exh. A - 34
<PAGE>
4065 PlastiCard DES Each Data Encryption System (DES) Personal Identification Number .0359/DES PIN
PIN Generation (PIN) created by the FDR System in connection with a plastic card generated
produced by FDR on behalf of Customer.
4020 PlastiCard Each instance in which a change is made to any or all of (i) Customer's 3.5266/change
Embossing Set-Up prin level (if prin level billing for set-ups is required), (ii) the
plastic stock number, (iii) card carrier, (iv) tipping foil, (v) card
activation flag and sticker and/or (vi) ultragraphic color in connection
with Customer's plastic cards.
7640 PlastiCard Accelerated mailing of all of Customer's daily issue plastics. .0300/plastic
Expedited
Turnaround
7638 PlastiCard Free Each mailer containing up to 25 customized alpha numeric printed .0150/mailer
Form Text characters of free form text. The text will print on a predesigned area
of a generic mailer.
7642 PlastiCard Image The acceptance and management by FDR of each 1" x 1" electronic Quote/image
Management (1" x photo image scanned by a party other than FDR for use on the FDR
1") PlastiCard Customer Services image database. Each such image shall
be stored by FDR for use for up to five (5) years.
7700 PlastiCard Image The acceptance and management by FDR of each 2" x 2" electronic Quote/image
Management (2" x photo image scanned by a party other than FDR for use on the FDR
2") PlastiCard Customer Services image database. Each such image shall
be stored by FDR for use for up to five (5) years.
7639 PlastiCard Image Each logo or other image stored by FDR as a digitized image on a data $100.00/image
Scanning base for up to five (5) years.
7701 PlastiCard Image
Required
Revolving File The process whereby a specified embossing record is suspended from Quote/suspended
completion until either (i) an image is available, in which case the record checked per
image is utilized for the embossed plastic or (ii) a specified number of processing day
days has elapsed, in which case the embossing record is completed as a
non-photo item or r4emoved from processing.
4230 PlastiCard Indent Each plastic card of Customer's Cardholders for which FDR has used .0200/plastic
Printing indent printing.
4014/ PlastiCard The inserting of each accompanying piece of materials into a #10 .0186/insert
4015/ Inserting windowed envelope along with a pre-folded card carrier containing a
4016/ merged Cardholder plastic. Excludes inserts required by state or
4017 Federal law. Customer supplies inserts.
4022 PlastiCard Job Each scheduled daily receipt of a Customer's Cardholder Account $30.00/job
Processing information, including logging onto the AS400 system and setting up
control reports for each input.
7677 PlastiCard Laser Each PlastiCard PIN/Post Mailer which is laser printed and pressure .1200/mailer
PIN/Post Mailer sealed.
Processing
4011 PlastiCard Mail Mail preparation and handling fees associated with non-first class .8017/carrier plus
Handling mailings of Customer's Cardholder and Merchant plastics. postage
4083 PlastiCard Mail The mixture by FDR of a mail item containing an embossed plastic .0477/item
Integration with several other types of mailing items prior to their delivery to the
United States Postal Service for mailing. Anything in this Agreement to
the contrary notwithstanding, Customer understands and agrees that, with
respect to any embossed plastics for which FDR provides PlastiCard
Mail Integration Services, the normal turnaround for the mailing of such
embossed plastics shall, for purposes of this Agreement, be delayed by one
(1) business day.
Exh. A - 35
<PAGE>
4023 PlastiCard Each plastic card for which FDR has mechanically raised personalized .3202/plastic
Merchant Plastic characters in accordance with Customer's Product Control File settings
and Merchant masterfile.
4024 PlastiCard Each metal plate for which FDR has mechanically raised personalized .5339/plate
Merchant Plate characters in accordance with Customer's Product Control File settings
and Merchant masterfile.
n/a PlastiCard Process by which FDR creates an embossed plastic containing an N/a
Photocard Services image provided by the Cardholder. Customer and FDR hereby agree
(1" x 1" or 2" x 2") that all photographs sent to FDR by Customer for use by FDR in the
performance of the PlastiCard Photocard Services set forth in this
Agreement shall, prior to delivery to FDR, be reviewed by
Customer for content. Customer acknowledges and agrees that,
with respect to the issuance of Photocards to its Cardholders,
FDR has no responsibility and assumes no responsibility whatsoever
for the content of any such photographs, and that Customer
is solely responsible for interpreting applicable state and federal
laws (including but not limited to laws governing obscenity, privacy,
proprietary information ownership rights and copyright/trademark
infringement), monitoring applicable legal developments, determining
the requirements for compliance with all applicable state and federal
laws, and maintaining an ongoing compliance program in connection with
such services.
7666 PlastiCard The handling and merging of images (not larger than 1" x 1") with .4300/plastic
Photocard Photo corresponding data to create an output file.
Image Handling
and Merge (1" x
1")
7669 PlastiCard The handling and merging of images (2" x 2") with corresponding data to .4600/plastic
Photocard Photo create an output file.
Image Handling
and Merge (2" x
2")
7665 PlastiCard The process by which FDR (i) scans a photograph or signature (not 2.1500/plastic
Photocard larger than 1" x 1"), (ii) cleans/crops the photograph or signature and
Photo/Signature (iii) stores such photograph or signature as a digitized image on a data
Scanning and base for up to five (5) years.
Digitization (1" x
1")
7668 PlastiCard The process by which FDR (i) scans a photograph (2" x 2"), (ii) 2.3700/plastic
Photocard Photo cleans/crops the photograph and (iii) stores such photograph as a
Scanning and digitized image on a data base for up to five (5) years.
Digitization (2" x
2")
7664 PlastiCard The affixation of a digitized photographic image (not larger than 1" x 1.200/plastic
Photocard Photo 1") to a plastic Transaction Card.
Transfer (1" x 1")
7667 PlastiCard The affixation of a digitized photographic image (2" x 2") to a plastic 1.3300/plastic
Photocard Photo Transaction Card.
Transfer (2" x 2")
Exh. A - 36
<PAGE>
4008 PlastiCard PIN Each plastic card Personal Identification Number (PIN), and associated .1065/mailer
Mailer Processing PIN notice form, related to Customer's Cardholder.
4236/ PlastiCard The edit functions performed on a PIN/Post Mailer before printing. .2500/edit
4237/ PIN/Post Mailer The service includes Mailer method changes, Mailer address changes,
4238/ Production Edits Mailer mail date changes and Mailer deletions.
4239
4009 PlastiCard Post Each plastic card mail verification form (POST Mailer), related to .1065/mailer
Mailer Processing Customer's Cardholder.
4103 PlastiCard The fee associated with each programmer hour of computer Quote/programmer
Programming programming supplied by FDR's PlastiCard programming staff. hour
4012/ PlastiCard Pull Each removal of a card carrier and/or printed PIN/POST Mailer from .5094/carrier
4013 (Purging) the delivery/mail stream prior to delivery to Customer or Customer's
Cardholder. This includes but is not limited to "pull and destroys",
"pull and mail to different address" and "pull and mail overnight" (3
day turnaround).
7680 PlastiCard Pull (1 Each removal of a card carrier and/or printed PIN/Post mailer form 6.000/carrier
or 2 Day Non- from the production process prior to delivery to Customer or
Holds) Customer's Cardholder. This includes but is not limited to "pull and
destroys", "pull and mail to a different address" and "pull and mail
overnight" (1 and 2 day turnaround with holds).
7681 PlastiCard Pull (2 Each removal of a card carrier and/or printed PIN/Post mailer from the 3.500/carrier
Day Holds) production process prior to delivery to Customer or Customer's
Cardholder. This includes but is not limited to "pull and destroys",
"pull and mail to a different address" and "pull and mail overnight" (2
day turnaround with holds).
7692 PlastiCard Records The fee associated with processing each embossing record through .0200/carrier
Processed FDR's mainframe. This fee is waived by FDR if Customer utilizes
FDR's core embossing services.
7678 PlastiCard Same Each embossed Cardholder plastic where FDR mails or delivers the $12.00/plastic
Day EmbossingTM plastic to a courier during the same day of Customer's request via an
("PSD") on-line screen. The service includes standard embossing, carrier
printing, inserting and other services required to prepare the plastic
for delivery. Requests for PlastiCard Same Day EmbossingTM must be
received by 1400 hours Central Time Zone.
7679 PlastiCard Same Each Cardholder Account of Customer for which FDR performs hot Quote/account
Day Hot Stamping stamping in connection with the PlastiCard Same Day Embossing
service.
Exh. A - 37
<PAGE>
PlastiCard Sample Each physical plastic card, either blank or embossed with fictitious Quote/plastic
Plastics information to resemble a real plastic, which is provided to an Issuer
for promotional, marketing or other purposes. Each such plastic shall be
intentionally damaged by FDR to prevent fraudulent use.
7645 PlastiCard Smart Each Cardholder plastic of Customer for which FDR performs a Quote/plastic
Card process of loading a dollar value or Customer specific information
Personalization onto, and initialization of, a "smart card" computer chip embedded
within the plastic.
4028 PlastiCard Special Rush servicing of cards from hard copy (fax or mail) reports or $25.00/carrier
Embossing - Same requests. Includes manual embossing, carrier printing and hand
Day Mailing inserting, and applies to any pieces pulled out of normal process.
Cards will be mailed the same day as the request is received if received
by 10:00 a.m. CTZ.
4019 PlastiCard Special Rush servicing of cards from hard copy (fax or mail) reports or $12.00/carrier
Embossing - Next requests. Includes manual embossing, carrier printing and hand
Day Mailing inserting, and applies to any pieces pulled out of normal process.
Cards will be mailed the day following the date the request is received
if received by 5:00 p.m. CTZ.
4029 PlastiCard Special Rush servicing of cards from hard copy (fax or mail) reports or 6.500/carrier
Embossing - Two requests. Includes manual embossing, carrier printing and hand
Day Mailing inserting, and applies to any pieces pulled out of normal process.
Cards will be mailed the second day following the date the request is
received if received by 5:00 p.m. CTZ.
4001/ PlastiCard Each plastic card for which FDR has mechanically raised personalized .2084/plastic
4002 Standard characters prepared at the request of Customer based upon Customer's embossed
Embossing Product Control File or a CRT entry request made by an employee of
Services Customer, or in response to a receipt of a magnetic tape or
transmission from Customer of embossing files in a format defined
by FDR. Includes up to three lines of alpha-numeric font and
one line of OCR font on a ".030" plastic, the recording and
verifying of data on the Transaction Card's magnetic stripe (high
or low coercivity), the tipping of the plastic through the placement
of a contrasting color plastic film on the raised embossed
characters, the printing of variable card carrier information on a
Customer-specified card carrier form and the insertion of a card
carrier containing a merged Cardholder plastic into an envelope, and
the electronic matching of plastic to the related card carrier. An FDR
generic card carrier and envelope are included at no charge, provided,
however, that due to increased inventory cost, if Customer uses its own
materials, Customer will not be entitled to receive a price discount.
FDR will generate embossing information based upon Customer's
Product Control File (or, at Customer's option, receive
embossing information via tape from Customer), use such information
to prepare the embossed plastic and mail the embossed plastic on
behalf of Customer to its Cardholder at the Cardholder's then current
address.
7689 PlastiCard Each half hour of labor required of FDR to create, paint or revise an Quote/half hour
Template Creation overlay document used to print onto a page for a card carrier and/or
mailer.
Exh. A - 38
<PAGE>
7688 PlastiCard Each simplex or duplex laser printed (or similar technology) card .0800/carrier or form
Ultraforms carrier or form (to which a plastic card is affixed by adhesive)
sent by FDR on behalf of Customer to a Cardholder which card
carrier or form contains personalized information created by
the use of electronic documents or "templates" regarding the
Cardholder (including but not limited to name, address, account
number and credit limits).
4206 PlastiCard Each front side of a Transaction Card of Customer on which a logo is .1137/plastic
Ultragraphics - placed through the use of a thermal image process.
Front Side
4205 PlastiCard Each back side of a Transaction Card of Customer on which a logo is .1137/plastic
Ultragraphics - placed through the use of a thermal image process.
Back Side
4025 PlastiCard Vault The inventory and storage of plastics, procured through a source other .0101/plastic, levied
Storage than FDR, for a period of six (6) months from receipt of shipment. upon receipt of
shipment
6624 POS 950 Access Each dial-up point-of-sale terminal inquiry serviced by FDR for .0800/inquiry
Authorization Merchants of Customer by the use of a dial-up point-of-sale terminal
Inquiry and 950 telecommunication services. Customer shall pay FDR for
each instance during which FDR had electronic contact with a Merchant of
Customer and receives the Merchant number.
If a Merchant of Customer attempts to use its normal line to obtain an
authorization and the Merchant is unable to use such line
and uses another line, Customer shall pay FDR at the rate
charged for the line used by the Merchant. The price above for POS
950 Access is based upon response times associated with a Merchant
POS device utilizing a 1200 bit per second (bps) data line. In the
event that Customer's Merchants which elect to receive 950 Access
from FDR hereunder operate a Merchant POS device utilizing a data
line with less than a 1200 bps capability, then FDR shall have
the right, at its sole discretion, to increase at any time the price
then currently being charged to Customer for 950 Access in connection
with the 950 Access Inquiries generated by any such Merchants.
950 Access is available to certain telephone number prefixes, listed
by area code, as set forth in FDR's then current list of such prefixes.
Such list shall be provided to Customer upon request.
6606 POS Interstate Each dial-up point-of-sale terminal inquiry serviced by FDR for .1350/inquiry
Authorization Merchants of Customer by the use of a dial-up point-of-sale terminal
Inquiry and interstate WATS line telecommunication services. Customer shall
pay FDR for each instance during which FDR had electronic contact with
a Merchant of Customer and receives the Merchant number.
If a Merchant of Customer attempts to use its normal line to obtain an
authorization and the Merchant is unable to use such line and uses
another line, Customer shall pay FDR at the rate charged for the line used
by the Merchant.
Exh. A - 39
<PAGE>
6605 POS Intrastate Each dial-up point-of-sale terminal inquiry serviced by FDR for .1350/inquiry
Authorization Merchants of Customer by the use of a dial-up point-of-sale terminal
Inquiry and intrastate WATS line telecommunication services. Customer shall
pay FDR for each instance during which FDR had electronic contact with
a Merchant of Customer and receives the Merchant number.
If a Merchant of Customer attempts to use its normal line to obtain an
authorization and the Merchant is unable to use such line and uses
another line, Customer shall pay FDR at the rate charged for the line used
by the Merchant.
6604 POS Local Line Each dial-up point-of-sale terminal inquiry serviced by FDR for .0900/inquiry
Authorization Merchants of Customer by the use of a dial-up point-of-sale
Inquiry terminal and local line telecommunication services. Customer shall pay
FDR for each instance during which FDR had electronic contact with a
Merchant of Customer and receives the Merchant number.
If a Merchant of Customer attempts to use its normal line to obtain an
authorization and the Merchant is unable to use such line and uses
another line, Customer shall pay FDR at the rate charged for the line used
by the Merchant. Local lines for authorization services are available in
the cities listed on-line under a TC-400 transaction.
4435 Postal Discount The fee associated with providing any postage discount generating .0300/item
Processing Fee services for Customer's first class mailings.
7647 Postal Discount The fee associated with providing postage pre-sort discount generating .0100/mailer
Processing Fee - services for Customer's PlastiCard Mailers.
PlastiCard
2858 Potential The queuing, for review by Customer's personnel, of Cardholder .0592/account
Chargeback Queue Accounts of Customer which meet Issuer criteria for 'over floor-
missing authorization' chargebacks and for which a transaction has been
made meeting chargeback reason criteria. The service is charged on a per
account in queue per day basis, but calculated on a monthly basis.
3516 Premier Each interactive touch tone authorization inquiry serviced by FDR for .5000/inquiry
Authorization Merchants of Customer. Customer shall pay FDR for each instance
Inquiry during which FDR has electronic contact with a Merchant of Customer
and receives the Merchant number. In addition, if a Premier authorization
inquiry results in a Voice Authorization Inquiry, Merchant request for
assistance or a security action, Customer will pay FDR for the Premier
authorization and the appropriate voice and/or security action
charge as provided in this Agreement.
2876 Promotional Letter Each letter prepared by FDR at the request of Customer for mailing to Quote/letter
Cardholders (or Merchants) of Customer for promotional purposes.
n/a PTC Software Software package that allows Customer or a Merchant of Customer to N/a
authorize and post Transaction Card transactions. The FDR Personal
Ticket Capture (PTC) system is a proprietary product that works in
conjunction with the FDR Electronic Ticket Capture (ETC) product.
0253 PTC Software Copy of the PTC/ATP version of the PTC Software. $200.00/copy
Copy (PTC/ATP)
0251 PTC Software Copy of the 1.00 version of the PTC Software. $30.00/copy
Copy (PTC 1.00)
Exh. A - 40
<PAGE>
0250/ PTC Software 1.00 or PTC/ATP version of the PTC Software with the accompanying $200.00/package
0252 With License license.
n/a RAPID Services Returned Account Plastics Immediately Delivered (Rapid) Services N/a
shall be performed by FDR on behalf of Customer for a Cardholder of
Customer. FDR shall research, track and, if possible and at Customer's
option, reroute to the Cardholder's new address Transaction Cards
which have been returned to FDR due to a change in the Cardholder's
address. FDR shall also enter such address change on the Cardholder
masterfile. Returned Transaction Cards of Cardholders for which no
new address is available and those which Customer elects not to
reroute to the Cardholder shall be destroyed.
7114 RAPID Services - Each plastic which is destroyed as a result of the RAPID Services. 1.8963/plastic
Destroyed
7113 RAPID Services - Each plastic which is able to be resent to the Cardholder at the 2.6634/plastic plus
Rerouted to Cardholder's new address as a result of the RAPID Services. postage
Cardholder
5781 Real Time Customer may monitor a Merchant's activity prior to the processing of .0350/number of daily
Merchant Fraud tickets and suspend batches of tickets from processing and delay or transactions
Exceptions delete the monetary settlement of known fraudulent activity. suspended within the
queue
n/a Recovery 1 An on-line system which provides Customer with the means to n/a
Services perform Transaction Card recovery services on Customer's charged-off
Cardholder Accounts. Customer shall have on-line access to
certain software and services on the FDR System which will allow
customer to perform various collection related functions with
respect to such Accounts.
In the event that Customer elects to utilize the Recover 1 Services,
then Customer hereby agrees to continue to utilize such services for
a period of not less than twelve (12) months following the
commencement date of such services.
7286 Recovery 1 Each transaction affecting an account balance which transaction is .1500/transaction
Services - generated in connection with a Cardholder Account of Customer
Financial utilizing the Recovery 1 Services.
Transaction Fee
7285 Recovery 1 Each Cardholder Account of Customer assigned to the Recovery 1 .1200/account per
Services - Monthly system upon the conclusion of a calendar month. month
Residence Fee
7287 Recovery 1 Each note entered into the Recovery 1 file for a Cardholder Account of .0010/note
Services - Note on Customer for archival use.
File
7288 Recovery 1 Each DecisionMaster Save or Analyze Portfolio Save executed in 3.500/run
Services - Save connection with a Cardholder Account of Customer utilizing the
Executed Recovery 1 Services.
6632 Referral Each referral authorization message handled by FDR on behalf of 2.7500/referral
Customer's Merchant.
2844 Referral Queue Authorization Referrals to which the Merchant failed to .0636/account
respond are recorded in a real-time on-line work queue for review by
Customer to initiate the appropriate action. The service is charged on
a per account in queue per day basis, but calculated on a
monthly basis.
0343 Regulation "Z" Each line of notification, included on a Cardholder Statement, .0025/line
Statement Message informing the Cardholder of the renewal of the Cardholder Account
and assessment of an annual fee therefor.
Exh. A - 41
<PAGE>
2835 Retail On-Line Each entry of information or inquiry into the computer records of .0150/transaction
Transaction Customer and its Cardholders with promotional purchases on file by an
employee of Customer by the use of a terminal located at Customer's
office.
0098 Retrieval Each manual fulfillment provided by FDR in response to a request for 2.7500/retrieval
a Merchant Ticket or copy of the same stored at FDR on behalf of
Customer.
7934 Return Account The processing of mailed plastics returned by the United States Postal 1.400/account
Processing Service Service due to undeliverable address. Each such plastic shall be
destroyed by FDR and reported to Customer.
0242 RMS Hardcopy Each FDR Reports Management System (RMS) report provided to .0297/page
Report Customer by FDR in hardcopy form.
5075 RMS Online Each page of an RMS Online Report printed at Customer's location. .0280/page
Report - Report
Printing
5071 RMS On-Line Each page of an RMS Report for which Customer requires access later 5.3270/page
Report - Restore than eight (8) days following the date that such report is first made
available to Customer.
5072 RMS On-Line Each RMS Report which is split into component parts by FDR at the $75.00/report
Report - Splitting request of Customer.
2809 RMS On-Line Each FDR Reports Management System (RMS) report provided to .0200/page
Report Customer by FDR in an online view form.
For purposes of the billing of RMS Reports: (i) if the standard
(or default) setting for a particular report is "0", then all
pages of RMS On- Line View and RMS RJE of such report provided by
FDR to Customer shall be billed to Customer at the prices above, or
(ii) if the standard (or default) setting for a particular report is
a value other than "0", then each page of the RMS On-Line View of such
report provided by FDR to Customer shall be at no charge and each
page of RMS RJE of such report shall be billed to Customer at the prices above.
0249 RMS RJE/NDM Each FDR Reports Management System (RMS) report provided to .0158/page
Report Customer by FDR in remote job entry (RJE) or network data mover
(NDM) format.
For purposes of the billing of RMS Reports: (i) if the standard
(or default) setting for a particular report is "0", then all
pages of RMS On- Line View and RMS RJE of such report provided by
FDR to Customer shall be billed to Customer at the prices above, or
(ii) if the standard (or default) setting for a particular report is
a value other than "0", then each page of the RMS On-Line View of such
report provided by FDR to Customer shall be at no charge and each
page of RMS RJE of such report shall be billed to Customer at the prices above.
2754 Security Details Each Cardholder Account of Customer which is statused lost or stolen .5486/account
Worked Online and which is automatically identified and reported to an online work
queue.
0264/ Service Plus Help Each instance in which a Merchant of Customer calls the Service Plus 1.7500/call
0265 Call Help Center.
Exh. A - 42
<PAGE>
0266 Service Plus Each Merchant location of Customer participating in the Service Plus 1.1191/merchant
Registered Help Center program. location
Merchant
0294 Special RMS The additional charge to Customer for each non-standard or unique $30.00/report
Report Premium RMS report provided to Customer at Customer's request.
7010 Status Code A change by FDR personnel to the external status code or credit limit .6912/transaction
Change - Manual of a Cardholder Account of Customer made upon Customer's request.
Entry by FDR
7037 Terminated Each entry of a Merchant Account of Customer onto or check of a new 1.6512/transaction
Merchant File Merchant Account of Customer against the Terminated Merchant File.
Transaction
2836 Transaction Level Each promotional purchase balance, associated with a Cardholder .2000/month per
Processing (TLP) Account of Customer (several promotional purchase balances may
Promotional exist at the same time for the same Cardholder Account), which
Balance on File remains on the FDR System on the last processing day of the calendar
month, as defined on the CD-121 Ledger Activity Report or the
equivalent report (e.g. - the CD-621 Report).
7330 Transaction Level Each Cardholder initiated transaction (as indicated on the CD-864 .0450/transaction
Rewards (TLR) Report or its equivalent), specifically targeted by transaction and
Only Transaction Cardholder decision tables, and passed to the FDR rewards system for
processing (transactions which have already been posted to a TLP
Promotional Balance on File are excluded). Multiple targeted transactions
may post to a single Cardholder Account in any one month.
6621 Voice Each Merchant authorization request received by FDR through voice .6223/inquiry
Authorization inquiries from Merchants of Customer, including collect calls, or via
Inquiry telegrams and telexes from countries outside of the United States.
2855 Warning Bulletin The queuing of internally or externally statused Cardholder Accounts .0132/account
Record Queue of Customer for review and possible listing on the MasterCard
Warning Bulletin, the MasterCard Authorization File or the VISA
Warning Bulletin by Customer's personnel. The service is charged on
a per account in queue per day basis, but calculated on a monthly basis.
2720 Warning Bulletin The system-automated, initial generation of a MasterCard Warning .5538/transaction
Transaction - Bulletin, MasterCard Authorization File or VISA Warning Bulletin
Automatic Entry account entry transaction; the account listing and region(s) shall be as
dictated by Customer.
7009 Warning Bulletin Each entry or change made to the MasterCard Warning Bulletin, .6411/transaction
Transaction - MasterCard Authorization File or VISA Warning Bulletin by FDR
Manual Entry by personnel; the account listing and region(s) shall be as dictated by
FDR Customer.
2608 XQR Collection An entry made by an employee of Customer to reassign collection 1.00/transaction
Transaction accounts to alternative employees' work queues.
</TABLE>
Exh. A - 43
<PAGE>
V. REIMBURSEMENTS AND ASSESSMENTS
a. The communications data circuit, including the reoccurring service
charge, service termination fees and required modem(s) (data sets)
at Customer's location(s) and FDR, terminal(s) and any other
directly associated expenses, shall be at Customer's expense. The
data circuit cost will be no greater than that associated with a
point-to-point digital data circuit(s) based on the tariffs of
FDR's primary carrier. One time costs related to the installation
of the circuit, as specified by such tariffs, will also be paid by
Customer. The actual circuit speed and ensuing cost will be
determined by Customer's communications requirements.
b. Customer shall be responsible for and billed directly for any
MasterCard, VISA or other Transaction Card dues, fees and
assessments. Customer shall reimburse FDR for Base Access Fees
incurred by FDR on behalf of Customer. (IN - 3513)
c. Customer shall pay all courier expenses associated with the
transportation of reports and documents from Customer to FDR and
from FDR to Customer.
d. (i) FDR agrees to act as an agent on behalf of Customer and
Customer shall reimburse FDR at cost (after applying any
applicable rebates, refunds and discounts) for the purchase on
Customer=s behalf of the postage required to mail statements,
notices, letters and other materials mailed by FDR on behalf of
Customer. While this Agreement is in effect, Customer shall pay
FDR daily pursuant to this Agreement at the then current first
class, single piece postage rate for all mailings mailed by FDR
for Customer during that day. Within ten (10) days after the end
of the month, FDR shall (i) calculate, for each discount category
offered by the United States Postal Service ("USPS") which is used
by Customer, the percentage of mailings with respect to all
customers of FDR that qualified for such discount and the number
of first class mailings mailed by FDR for Customer during such
month and (ii) include a credit on Customer=s monthly invoice for
the amount Customer is entitled to receive under this section.
Such credit shall be calculated by applying such percentage for
each USPS discount category against Customer=s total mailings in
such category to determine the appropriate USPS discount Customer
is entitled to receive.
(ii) Notwithstanding anything in paragraph (i) above, FDR agrees
to act as an agent on behalf of Customer and Customer shall
reimburse FDR at cost (after applying any applicable pre-sorting
rebates, refunds and discounts) for the purchase on Customer=s
behalf of the postage required to mail Cardholder plastics mailers
on behalf of Customer. While this Agreement is in effect, Customer
shall pay FDR daily pursuant to this Agreement at the then current
first class, single piece postage rate for all Cardholder plastics
mailers mailed by FDR for Customer during that day. Within ten
(10) days after the end of the month, FDR shall (i) calculate, for
the pre-sorting discount category offered by the United States
Postal Service ("USPS"), the percentage of mailings with respect
to all customers of FDR that qualified for such discount and the
number of Cardholder plastics mailers mailed by FDR for Customer
during such month and (ii) include a credit on Customer=s monthly
invoice for the amount Customer is entitled to receive under this
section. Such credit shall be calculated by applying such
percentage for the USPS pre-sorting discount category against
Customer=s total Cardholder plastics mailings in such category to
determine the appropriate USPS discount Customer is entitled to
receive.
e. For the Transfer of Customer's Accounts, as described in Section
2.4 of this Agreement, Customer shall pay FDR at a rate to be
quoted to Customer by FDR based upon the services provided in
connection with the Transfer; provided, that Customer shall, as an
advance payment against the total amount of the Transfer fee, pay
to FDR on or before October 31, 1999, the amount of twenty
thousand dollars ($20,000.00). Such amount shall be credited
against the total amount of the Transfer fee to be paid to FDR by
Customer hereunder.
f. For each Reward processed by FDR, Customer shall reimburse FDR for
the amount of the Reward payment to the Merchant, plus any
additional fees or charges to which FDR is entitled under
applicable MasterCard and VISA rules and regulations in connection
with the processing of such Reward. A Reward shall mean each
monetary payment made to a Merchant for the recovery of a statused
Transaction Card of Customer, which payment is processed by FDR in
accordance with the reward schedule established by MasterCard and
VISA for card pick-up. (IN - 7915)
Exh. A - 44
<PAGE>
g. Customer shall reimburse FDR for special service
set-up/certification fees and charges, training fees and
programming fees including but not limited to the set up/training
charges associated with FDR's Customer Inquiry Management System
(CIMS) Services, PIN Management System Services, Extended CIS
Services, Application Processing Services, PC Remote Access
Services, Account-Level Processing (ALP) Services, Online Access
and Retrieval System (OARS) Services, Acquiring Debit Services,
Transaction Level Processing (TLP)/Transaction Level Rewards (TLR)
Services, ANI Card Activation Services, Commercial Card Services,
Promotional Letter Services, Fraud Management/Fraud Detection
Services (Scoring and Strategy Start-Up and Call Processing), Auto
PIN Change service, InfoSight Services (for each program utilized
by Customer) and other services requiring special programming or
training. Prices for such services shall be provided by FDR upon
Customer's request.
h. Customer shall reimburse FDR for destroyed forms, product service
selects, network control requests, equipment sales, supplies and
documentation manuals.
VII. VOLUME-SENSITIVE GRID PRICES
Commencing on the effective date of this Agreement, Customer shall pay
FDR for each volume-sensitive service ("Service") at the rate indicated
by "**". Upon the expiration of each Processing Year, FDR shall
calculate the actual volume of each item of Service during such
Processing Year and then determine the appropriate price per item of
each Service. Based upon such calculation, FDR shall then calculate the
total amount of processing fees owed by Customer to FDR during such
Processing Year. If, during any Processing Year, Customer shall have
paid FDR more or less than the amount owed to FDR based upon the above
calculations, then FDR shall issue a credit to Customer for any amounts
due Customer under this Section or invoice Customer for any amounts due
FDR, as appropriate. The fees charged for each item of Service during
each subsequent Processing Year shall be based upon the previous
Processing Year's volumes.
VIII. EXPLANATION OF PRICING TERMS
For purposes of this Exhibit A: (i) "quote" means this Agreement does
not contemplate the use of this service or product, but FDR shall, on
the request of the Customer, provide a price for such service or
product, (ii) "n/a" means the applicable description is an overall
description of the applicable service for reference only and does not
describe a particular billing element, and (iii) "included" means the
charge for the service or product is included in the price of other
items in this Exhibit A.
IX. PRICES FOR SERVICES NOT COVERED BY THIS AGREEMENT
For any services performed by FDR at Customer's direction which are
neither set forth in this Exhibit nor covered by a separate agreement,
Customer shall pay FDR for such services at FDR's then current standard
rates.
Exh. A - 45
<PAGE>
EXHIBIT B
---------
AFFILIATE AGREEMENT
The undersigned, as a Customer Transaction Card Affiliate ("Customer
Transaction Card Affiliate") of Fidelity Federal Bank, a Federal Savings Bank
("Customer"), hereby elects to receive Services from First Data Resources Inc.
("FDR") pursuant to the Service Agreement between Customer and FDR dated as of
October 8, 1999, as the Service Agreement may be amended from time to time (the
"Service Agreement"). This agreement (this "Agreement") shall constitute an
"Affiliate Agreement" as such term is defined in the Service Agreement. In
making this election, Customer Transaction Card Affiliate agrees as follows:
1. Customer Transaction Card Affiliate acknowledges receipt of a copy
of the Service Agreement which includes the description of the Services.
Customer Transaction Card Affiliate agrees to be bound by all of the terms and
conditions of the Service Agreement including any terms and conditions in any
amendment to the Service Agreement which may hereafter be agreed to by Customer
whether or not Customer Transaction Card Affiliate is provided notice or a copy
of or is a signatory to the amendment.
2. Customer Transaction Card Affiliate specifically agrees to comply
with the applicable rules, procedures, manuals and instructions of MasterCard,
VISA and FDR as in effect from time to time.
3. Customer shall have full authority to represent Customer Transaction
Card Affiliate and to act fully on Customer Transaction Card Affiliate's behalf
in connection with this Agreement and the Service Agreement including the
negotiating with FDR of any amendments, extensions or revisions of this
Agreement or the Service Agreement, the asserting, negotiating and resolving of
any controversy, dispute or claim under this Agreement or Service Agreement and
the execution or delivery of any documents.
4. If Customer shall fail to pay any amounts due under the Service
Agreement, Customer Transaction Card Affiliate shall pay FDR on demand the
portion of such amounts due from Customer to FDR for services performed by FDR
for or on behalf of Customer Transaction Card Affiliate (as determined by FDR,
based upon the percentage that the Processing Fees relating to processing for
Customer Transaction Card Affiliate are of the total Processing Fees under the
Service Agreement).
5. This Agreement shall be governed by the laws of the State of
Nebraska and any claim, suit or proceeding shall be subject to the provisions of
Section 13.3 of the Service Agreement.
6. Customer Transaction Card Affiliate acknowledges and agrees that it
may not transfer or assign its rights under this Agreement without the prior
written consent of FDR.
Exh. B - 1
<PAGE>
7. Terms used in this Agreement and not defined herein shall have the
definitions provided in the Service Agreement.
8. Any notice to Customer Transaction Card Affiliate shall be given as
provided in Section 13.4 of the Service Agreement except to the following
address;
Name:
-----------------------------
Address:
-----------------------------
Attention:
-----------------------------
Telecopy No.:
-----------------------------
Any notice to FDR shall be given as provided in Section 13.4
of the Service Agreement.
9. This Agreement shall remain effective until the expiration or
termination of the Service Agreement. This Agreement, along with the Service
Agreement as the Service Agreement may be amended from time to time, sets forth
the entire understanding of the parties with respect to the subject matter
hereof and supersedes all prior agreements or understandings among the parties
with respect to the subject matter hereof. This Agreement may not be amended
except in a writing signed by an authorized officer or representative of each of
the parties hereto. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
- -------------------------------------
Name of Affiliate
By:
-----------------------------
Name:
-----------------------------
Title:
-----------------------------
Date:
-----------------------------
ACCEPTED AND AGREED TO:
FIRST DATA RESOURCES INC.
By:
-----------------------------
Name:
-----------------------------
Title:
-----------------------------
Date:
-----------------------------
Exh. B - 2
<PAGE>
EXHIBIT C
---------
DEFINITIONS
The following definitions apply to the terms set forth below when used
in this Agreement:
"AAA" is defined in Exhibit D to this Agreement.
"Acquire" (and with the correlative meaning "Acquisition") means to
acquire, directly or indirectly, an interest through purchase, exchange or other
acquisition of assets, stock or other equity interests, or to merge or
consolidate or any similar transaction.
"Acquirer" means an Entity which has an arrangement with a Merchant to
obtain Transaction Card Tickets from the Merchant and present the Transaction
Card Tickets through an Interchange to an Issuer.
"Affiliate" means, with respect to Customer or FDR, any Entity which,
directly or indirectly, owns or Controls, is owned or Controlled by, or is under
common ownership or common Control with Customer or FDR, as applicable.
"Affiliate Agreement" shall mean an agreement substantially in the form
of Exhibit B which is executed by Customer's Issuer Affiliates and Customer's
Merchant Affiliates.
"Agreement" shall mean this Service Agreement as amended from time to
time including any Exhibits attached hereto from time to time and the executed
Affiliate Agreements, if any.
"Arbitration Demand" is defined in Exhibit D to this Agreement.
"Arbitration Panel" is defined in Exhibit D to this Agreement.
"Balance Sheet Expenses" means the amounts maintained on the balance
sheet of FDR with respect to this Agreement, including (i) costs or expenses
which FDR incurs, or for which it reimburses Customer, and capitalizes on its
balance sheet in connection with setting up Customer on, or converting Customer
to, the FDR System and (ii) amounts paid or credit to be applied against future
processing fees to be paid by Customer and capitalized by FDR on its balance
sheet as a signing fee, sign-up bonus, start-up bonus, conversion bonus, renewal
bonus or similar payment or credit paid or credited by FDR to Customer at the
time of the execution, renewal or extension of this Agreement.
"Basic Qualifications" is defined in Exhibit D to this Agreement.
"BIN" means a Bank Identification Number issued by VISA.
Exh. C - 1
<PAGE>
"Business Continuity Plan" is defined in Section 13.2 of this
Agreement.
"Cardholder" means an individual or Entity which has a Cardholder
Account with an Issuer.
"Cardholder Account" means an arrangement between an individual or an
Entity and an Issuer which provides that the individual or Entity may use one or
more Transaction Cards issued by the Issuer.
"Change of Control" shall mean a change in the direct or indirect
ownership of a majority of an Entity=s (including Customer and any Affiliate of
Customer) outstanding capital stock (or other form of ownership) or a majority
of the voting power in any election of directors.
"CMC" is defined in the Recitals to this Agreement.
"CMC Agreement" is defined in the Recitals to this Agreement.
"Control" (and with the correlative meaning "Controlled") means the
power to direct the management or affairs of an Entity and "ownership" means the
beneficial ownership of more than 50% of the equity securities of the Entity.
"CPI" shall, for purposes of this Agreement, be the index compiled by
the United States Department of Labor's Bureau of Labor Statistics, Consumer
Price Index for All Urban Consumers (CPI-U) having a base of 100 in 1982-84,
using that portion of the index which appears under the caption "Other Goods and
Services."
"Cure Period" is defined in Section 2.10(b) of this Agreement.
"Customer's Accounts" means the Cardholder Accounts and Merchant
Accounts of Customer or any of Customer's Transaction Card Affiliates.
"Customer's Agent Bank" means an Entity which at any time during the
Term has an arrangement with Customer or an Affiliate of Customer which (a)
permits the Entity to act as an Issuer or an Acquirer and obtain services
related to the activities from either or both of Customer or one or more of
Customer's Affiliates, or (b) provides that an Entity may act as an Issuer or
Acquirer in conjunction with Customer or one or more of Customer's Affiliates.
"Customer's Issuer Affiliate" means an Affiliate of Customer that acts
as an Issuer (either alone or in conjunction with one of Customer's Agent Banks)
at any time during the Term.
"Customer's Merchant Affiliate" means an Affiliate of Customer that
acts as an Acquirer (either alone or in conjunction with one of Customer's Agent
Banks) at any time during the Term.
"Customer's Proprietary Information" is defined in Section 10.1 of this
Agreement.
Exh. C - 2
<PAGE>
"Customer's Transaction Card Affiliates" means any and all of
Customer's Issuer Affiliates, Customer's Merchant Affiliates and Customer's
Agent Banks.
"Daily Amount" is defined in Exhibit F to this Agreement.
"Deconversion" means the removal of information concerning Customer's
Accounts from the FDR System.
"Dispute" is defined in Section 5.1 of this Agreement.
"Disputing Party" is defined in Exhibit D to this Agreement.
"Enhancements" is defined in Section 2.3 of this Agreement.
"Entity" means a corporation, partnership, sole proprietorship, joint
venture, or other form of organization.
"Existing FDR Agreement" is defined in Section 3.2 of this Agreement.
"Existing Non-FDR Agreement" is defined in Section 3.3(a) of this
Agreement.
"Failed Month" is defined in Section 2.10(b) of this Agreement.
"FDR Portfolio" is defined in Section 3.2 of this Agreement
"FDR's Proprietary Information" is defined in Section 10.2 of this
Agreement.
"FDR Settlement Rules" means the policies, rules and procedures adopted
by FDR from time to time and in effect from time to time to provide for the
payment of amounts due as the result of Interchange Settlement.
"FDR System" means the computer equipment, computer software and
related equipment and documentation used at any time and from time to time by
FDR to provide the Services.
"Former Accounts" is defined in Section 3.4 of this Agreement.
"ICA" means an InterBank Card Association number issued by MasterCard.
"Indemnified Party" is defined in Exhibit E to this Agreement.
"Indemnifying Party" is defined in Exhibit E to this Agreement.
"Insolvency Event" occurs, with respect to any party, when such party:
Exh. C - 3
<PAGE>
(i) is dissolved, becomes insolvent, generally fails to
pay or admits in writing its inability generally to
pay its debts as they become due;
(ii) makes a general assignment, arrangement, or
composition agreement with or for the benefit of its
creditors; or
(iii) files a petition in bankruptcy or institutes any
action under federal or state law for the relief of
debtors or seeks or consents to the appointment of an
administrator, receiver, custodian, or similar
official for the wind up of its business (or has such
a petition or action filed against it and such
petition action or appointment is not dismissed or
stayed within thirty (30) days).
"Interchange" means the contracts, agreements, rules, regulations and
procedures governing the relationships between, or the actions in accordance
with the contracts, agreements, rules, regulations and procedures by, any two or
more Entities in connection with the Interchange Settlement.
"Interchange Settlement" means the process by which FDR, on behalf of
either or both of Customer or Customer's Transaction Card Affiliates, (a)
facilitates payment for MasterCard and VISA Transaction Card Tickets presented
by Acquirers to Customer and Customer's Transaction Card Affiliates, (b)
receives payment for MasterCard and VISA Transaction Card Tickets presented by
Customer and Customer's Transaction Card Affiliates to Issuers, and (c) remits
and receives payments for chargebacks and other Interchange fees and expenses of
or payable by Customer or Customer's Transaction Card Affiliates.
"Issuer" means an Entity that has a Cardholder Account with a
Cardholder.
"Legal Requirements" is defined in Section 2.5 of this Agreement.
"MasterCard" means MasterCard International Incorporated or its
successors or assigns.
"Merchant" means an Entity that has the right to acquire or otherwise
acquires a Transaction Card Ticket as payment for goods, services, or otherwise.
"Merchant Account" means an arrangement between an Acquirer and a
Merchant which permits a Merchant to present Transaction Card Tickets to the
Acquirer for payment through the Interchange.
"Mid-Month Progress Payment" is defined in Section 4.5(b) of this
Agreement.
"Minimum Processing Fees" is defined in Section 4.4 of this Agreement.
Exh. C - 4
<PAGE>
"Net Settlement Amount" means the net dollar amount for each business
day of FDR of all (a) transactions processed for Customer and Customer's
Transaction Card Affiliates for the day determined in accordance with the
applicable rules of MasterCard, VISA and the FDR Settlement Rules, (b)
Interchange fees and expenses relating to Customer and Customer's Transaction
Card Affiliates, and (c) account expenses including overdraft charges, activity
charges, wire transfer fees and other charges relating to Customer and
Customer's Transaction Card Affiliates.
"Non-FDR Portfolio" is defined in Section 3.3(a) of this Agreement.
"Original Term" is defined in Section 8.1 of this Agreement.
"Performance Guidelines" is defined in Section 2.10(a) of this
Agreement.
"Processing Fees" means all fees and charges incurred for services
performed at the prices set forth in Exhibit A to this Agreement (including any
Year 1 Minimum Processing Fee or Minimum Processing Fee shortfall payments), as
adjusted from time to time by FDR consistent with this Agreement, with the
exception of Special Fees and specifically excluding all charges for taxes and
interest.
"Processing Year" is defined in Section 8.1 of this Agreement.
"Processing Year 1" is defined in Section 8.1 this Agreement.
"Purchaser" is defined in Section 3.2 of this Agreement.
"Renewal Term" is defined in Section 8.2 of this Agreement.
"Services" is defined in Section 2.1 of this Agreement.
"Settlement Account" is defined in Exhibit F to this Agreement.
"Settlement Late Payment Fee" is defined in Exhibit F to this
Agreement.
"Settlement System" is defined in Exhibit F to this Agreement.
"Special Fees" means the amounts payable by Customer on a pass-through
or reimbursement basis for services or goods provided by a third party,
including tariff line rates, WATS lines rates, data circuit charges and any
other rates charged to FDR by a communications common carrier, postage costs,
courier costs and costs of forms, as described in Exhibit A to this Agreement.
"Surviving Entity" is defined in Section 3.6 of this Agreement.
"Term" means the Original Term together with any Renewal Term or any
other extension of this Agreement.
"Total Annual Processing Fees" is defined in Section 4.4 of this
Agreement.
Exh. C - 5
<PAGE>
"Transaction Card" means a payment card issued pursuant to a license
from MasterCard, VISA or any other card issuing organization for which FDR
currently provides service support. This shall include any credit card, debit
card or any small business account card, purchasing account card or corporate
travel and expense account card ("Commercial Card") program offered by Customer.
"Transaction Card Ticket" means a record (whether paper, magnetic,
electronic or otherwise) which is created to evidence the use of a Transaction
Card as payment for goods, services, cash advances or otherwise or for a credit
or refund or otherwise.
"Transfer" is defined in Section 2.4(a) of this Agreement.
"User Manuals" means each of the FDR User Manuals listed in Section I
of Exhibit A to this Agreement.
"VISA" means, individually or collectively, as appropriate, VISA U.S.A.
Inc. or VISA INTERNATIONAL or either of their successors or assigns.
"VISA Agreements" is defined in Section 13.9 of this Agreement.
"Year 1 Minimum Processing Fee" is defined in Section 4.4 of this
Agreement.
Exh. C - 6
<PAGE>
EXHIBIT D
---------
ARBITRATION
ARBITRATION
- -----------
(a) If the parties are unable to resolve any Dispute as contemplated by
Section 5.1 of this Agreement, such Dispute shall be submitted to mandatory and
binding arbitration at the election of either party (the "Disputing Party").
Except as otherwise provided in this Exhibit D, the arbitration shall be
pursuant to the Commercial Arbitration Rules of the American Arbitration
Association (the "AAA").
(b) To initiate the arbitration, the Disputing Party shall notify the
other party in writing (the "Arbitration Demand"), which shall (i) describe in
reasonable detail the nature of the Dispute, (ii) state the amount of the claim,
(iii) specify the requested relief and (iv) name an arbitrator who (A) has been
licensed to practice law in the U.S. for at least ten years, (B) is not then an
employee of Customer or FDR or an employee of an Affiliate of either, and (C) is
experienced in representing clients in connection with commercial agreements
(the "Basic Qualifications"). Within fifteen (15) days after the other party's
receipt of the Arbitration Demand, such other party shall file, and serve on the
Disputing Party, a written statement (i) answering the claims set forth in the
Arbitration Demand and including any affirmative defenses of such party; (ii)
asserting any counterclaim, which shall (A) describe in reasonable detail the
nature of the Dispute relating to the counterclaim, (B) state the amount of the
counterclaim, and (C) specify the requested relief; and (iii) naming a second
arbitrator satisfying the Basic Qualifications. Promptly, but in any event
within fifteen (15) days thereafter, the two arbitrators so named will select a
third neutral arbitrator from a list provided by the AAA of potential
arbitrators who satisfy the Basic Qualifications and who have no past or present
relationships with the parties or their counsel, except as otherwise disclosed
in writing to and approved by the parties. The arbitration will be heard by a
panel of the three arbitrators so chosen (the "Arbitration Panel"), with the
third arbitrator so chosen serving as the chairperson of the Arbitration Panel.
Decisions of a majority of the members of the Arbitration Panel shall be
determinative.
(c) The arbitration hearing shall be held in such neutral location as
the parties may mutually agree. The Arbitration Panel is specifically authorized
to render partial or full summary judgment as provided for in the Federal Rules
of Civil Procedure. In the event summary judgment or partial summary judgment is
granted, the non-prevailing party may not raise as a basis for a motion to
vacate an award that the Arbitration Panel failed or refused to consider
evidence bearing on any dismissed claim or issue. The Federal Rules of Evidence
shall apply to the arbitration hearing. The party bringing a particular claim or
asserting an affirmative defense will have the burden of proof with respect
thereto. The arbitration proceedings and all testimony, filings, documents and
information relating to or presented during the arbitration proceedings shall be
deemed to be information subject to the confidentiality provisions of this
Agreement. The Arbitration Panel will have no power or authority, under the
Commercial Arbitration Rules of the AAA or otherwise, to relieve the parties
from their agreement hereunder to arbitrate or otherwise to amend or disregard
any provision of this Agreement, including, without limitation, the provisions
of this Exhibit D.
Exh. D - 1
<PAGE>
(d) Should an arbitrator refuse or be unable to proceed with
arbitration proceedings as called for by this Exhibit D, the arbitrator shall be
replaced by the party who selected such arbitrator, or if such arbitrator was
selected by the two party-appointed arbitrators, by such two party-appointed
arbitrators selecting a new third arbitrator in accordance with Exhibit D. Each
such replacement arbitrator shall satisfy the Basic Qualifications. If an
arbitrator is replaced pursuant to this paragraph (d) after the arbitration
hearing has commence, then a rehearing shall take place in accordance with the
provisions of this Exhibit D and the Commercial Arbitration Rules of the AAA.
(e) At the time of granting or denying a motion for summary judgment as
provided for in (c) and within fifteen (15) days after the closing of the
arbitration hearing, the Arbitration Panel shall prepare and distribute to the
parties a writing setting forth the Arbitration Panel's finding of facts and
conclusions of law relating to the Dispute, including the reasons for the giving
or denial of any award. The findings and conclusions and the award, if any,
shall be deemed to be information subject to the confidentiality provisions of
this Agreement.
(f) The Arbitration Panel is instructed to schedule promptly all
discovery and other procedural steps and otherwise to assume case management
initiative and control to effect an efficient and expeditious resolution of the
Dispute. The Arbitration Panel is authorized to issue monetary sanctions against
either party if, upon a showing of good cause, such party is unreasonably
delaying the proceeding.
(g) Any award rendered by the Arbitration Panel will be final,
conclusive and binding upon the parties and any judgment hereon may be entered
and enforced in any court of competent jurisdiction.
(h) Each party will bear one-half of all fees, costs and expenses of
the arbitrators and the arbitration proceeding, provided, however, that the
prevailing party in the arbitration will be entitled to recover reasonable
attorneys' fees incurred in connection with the arbitration; and provided,
however, that in connection with any judicial proceeding to compel arbitration
pursuant to this Agreement or to confirm, vacate or enforce any award rendered
by the Arbitration Panel, the prevailing party in such a proceeding will be
entitled to recover reasonable attorneys' fees and expenses incurred in
connection with such proceeding, in addition to any other relief to which it may
be entitled.
JUDICIAL PROCEDURE. Nothing in this Exhibit D shall be construed to prevent any
party from seeking from a court a temporary restraining order or other temporary
or preliminary relief pending final resolution of a Dispute pursuant to this
Exhibit D.
FEDERAL ARBITRATION ACT. The parties acknowledge and agree that performance of
the obligations under this contract necessitates the use of instrumentalities of
interstate commerce and, notwithstanding other general choice of law provisions
in this Agreement, the parties agree that the Federal Arbitration Act shall
govern and control with respect to relevant provisions of this Exhibit D.
Exh. D - 2
<PAGE>
EXHIBIT E
---------
INDEMNIFICATION
CUSTOMER'S INDEMNIFICATION. Customer shall indemnify and hold harmless
FDR and its directors, officers, employees, agents and affiliates from and
against any and all third party claims, liabilities, losses and damages
(including reasonable attorney fees, expert witness fees, expenses and costs of
settlement) arising out of or with respect to this Agreement, to the extent that
the claim, liability, loss or damage is caused by, relates to or arises out of
(a) the breach by Customer of any of its duties or obligations under this
Agreement or (b) a claim or action against FDR for any actual or alleged
infringement of any patent, copyright, trade secret or other proprietary rights
of any person in connection with the development of software or systems to
support an enhancement requested by Customer using designs or specifications
provided by Customer or in connection with the production by FDR of cards,
statements or other items for Customer using artwork, designs or concepts
provided by Customer.
Customer shall not have any obligation to indemnify FDR against any claim,
liability, loss or damage FDR or its directors, officers, employees, agents or
affiliates may suffer to the extent that the same arise out of FDR's negligent
performance of any of the services provided under this Agreement.
FDR'S INDEMNIFICATION. FDR shall indemnify Customer and its directors,
officers, employees and agents from and against any and all third party claims,
liabilities, losses or damages (including reasonable attorney fees, expert
witness fees, expenses and costs of settlement) arising out of or with respect
to this Agreement to the extent that the claim, liability, loss or damage is
caused by, relates to or arises out of (a) the breach by FDR of any of its
duties or obligations under this Agreement or (b) a claim or action against
Customer for actual or alleged infringement of any patent, copyright, trade
secret or other proprietary rights of any person by the FDR System or any part
thereof, except to the extent such claim is caused by (i) Customer=s failure to
use the FDR System as permitted under this Agreement, (ii) Customer=s use of the
FDR System in combination with other software or systems not expressly
authorized by FDR, or (iii) the development of software by FDR to support an
enhancement requested by Customer using designs or specifications provided by
Customer or the production by FDR of cards, statements or other items for
Customer using artwork, designs or concepts provided by Customer. The provisions
of this paragraph shall not be applicable in the case of such liability, claim,
demand or dispute to the extent that the same arise out of negligence or willful
misconduct of Customer, their assigns or their respective agents or employees.
NOTIFICATION. In the event a claim, suit or proceeding by a third party
for which indemnification may be available under this Agreement is made or filed
against a party or any Entity, the party against which the claim, suit or
proceeding is made (the "Indemnified Party"), shall promptly notify the other
party (the "Indemnifying Party") in writing of the claim, suit or proceeding.
The Indemnifying Party, within thirty (30) days, or such shorter period as is
required to avoid any prejudice in the claim, suit or proceeding, after the
notice, may elect to defend, compromise, or settle the third party claim, suit
Exh. E - 1
<PAGE>
or proceeding at its expense. In any third party claim, suit or proceeding which
the Indemnifying Party has elected to defend, compromise or settle, the
Indemnifying Party shall not after the election be responsible for the expenses,
including counsel fees, of the Indemnified Party but the Indemnified Party may
participate therein and retain counsel at its own expense. In any third party
claim, suit or proceeding the defense of which the Indemnifying Party shall have
assumed, the Indemnified Party will not consent to the entry of any judgment or
enter into any settlement with respect to the matter without the consent of the
Indemnifying Party and the Indemnifying Party will not consent to the entry of
any judgment or enter into any settlement affecting the Indemnified Party to the
extent that the judgment or settlement involves more than the payment of money
without the written consent of the Indemnified Party. The Indemnified Party
shall provide to the Indemnifying Party all information, assistance and
authority reasonably requested in order to evaluate any third party claim, suit
or proceeding and effect any defense, compromise or settlement.
CLAIMS PERIOD. Any claim for indemnification under this Agreement must
be made prior to the earlier of:
(a) One year after the party claiming indemnification becomes aware of
the event for which indemnification is claimed, or
(b) One year after the earlier of the termination of this Agreement or
the expiration of the Term.
Exh. E - 2
<PAGE>
EXHIBIT F
---------
INTERCHANGE SETTLEMENT
INTERCHANGE SETTLEMENT ACCOUNT. In order for FDR to provide its services to
Customer pursuant to this Agreement, it is necessary for FDR to handle and
settle Interchange Settlement for Customer through the international Interchange
networks of MasterCard and VISA. It shall be the responsibility of Customer to
provide ICA and BIN numbers from MasterCard and VISA, respectively, for use by
FDR in the settlement of transactions for Customer. Customer understands that
FDR handles the Interchange Settlement with MasterCard and VISA for its clients
including Customer on a net settlement basis (the "Settlement System"). To
facilitate the Settlement System, FDR has established, will establish or will
direct Customer to establish and may in the future establish or direct Customer
to establish one or more interchange settlement Central Clearing Accounts
(collectively the "Settlement Account") at one or more banks.
TRANSFER OF FUNDS. FDR shall calculate and inform Customer on each business day
of the amount of funds to be transferred (the "Daily Amount") as the result of
(a) current transaction processing, and (b) funding required for incoming
transactions of Customer. If the Daily Amount is negative, Customer shall
transfer to the Settlement Account, by the close of business of the Federal
Reserve System in New York, an amount equal to the Daily Amount. If the Daily
Amount is positive, FDR will transfer to Customer, or will cause MasterCard or
VISA to transfer to Customer, immediately available funds equal to the Daily
Amount prior to the close of business of the Federal Reserve System in New York
on such date.
DAILY AMOUNT. The Daily Amount shall equal (a) the Net Settlement Amount for
Customer, plus (b) the amount necessary to fund incoming Interchange
transactions not yet processed, determined in accordance with the FDR Settlement
Rules, minus (c) the amount previously advanced by Customer with respect to
prior incoming Interchange transactions for which processing is complete.
FAILURE TO TRANSFER. In the event of the failure of Customer on any business day
when required by the terms of this Agreement or the FDR Settlement Rules, to
transfer the Daily Amount to the Settlement Account, FDR may refuse, without
incurring any liability to Customer, to act as Customer's agent in discharging
any VISA or MasterCard Interchange obligations of Customer and shall have the
right to immediately notify MasterCard and VISA that it will no longer cause the
MasterCard or VISA Interchange obligations of Customer to be discharged. In
addition to the foregoing, FDR may take such actions with respect to Customer's
obligations under the Settlement System as FDR deems reasonable to protect FDR
or its customers from any loss arising from Customer's non-payment of the Daily
Amount.
Exh. F - 1
<PAGE>
SETTLEMENT LATE PAYMENT FEE. In addition to any other provisions in this
Agreement, in the event of Customer's failure to transfer or make available the
Daily Amount for any business day, Customer shall pay to FDR a late payment fee
(the "Settlement Late Payment Fee") which shall be equal to the amount Customer
would have been required to pay as a late payment fee under MasterCard and VISA
rules. The amount shall be calculated in accordance with the rules and shall
continue to accrue until FDR shall have received the Daily Amount from Customer.
Settlement Late Payment Fees shall be paid to FDR based upon the rules even
though FDR may have elected to make settlement with MasterCard or VISA in a
timely manner on behalf of Customer. If FDR has received funds from VISA or
MasterCard as a result of Interchange Settlement on behalf of Customer and fails
to make available the Daily Amount to Customer, FDR shall pay to Customer a late
payment fee based on the Daily Amount calculated in the same manner as the
Settlement Late Payment Fee.
NO INDEPENDENT OBLIGATION. The obligation of FDR to discharge any VISA or
MasterCard Interchange obligations of Customer or Customer's Transaction Card
Affiliates shall be solely as an agent of Customer in accordance with the terms
and provisions of this Agreement and the FDR Settlement Rules. FDR shall have no
independent obligation with respect to the discharge of the Interchange
obligations of Customer.
VIOLATION OF RULES. In the event that MasterCard or VISA shall notify FDR of any
violation of the rules and regulations of MasterCard or VISA, relating to
Customer or transactions processed for Customer, FDR shall have the right,
without liability to Customer, to terminate Interchange Settlement of
transactions on behalf of Customer under this Agreement until the time as FDR
shall have been notified by MasterCard or VISA that the violation has been
corrected.
RELIANCE ON OTHER PARTIES. Customer acknowledges that performance of Interchange
Settlement involves the settlement of certain of Customer's transactions jointly
and on a combined net basis with the settlement of transactions of other
customers of FDR. Accordingly, the payment or receipt by FDR of settlement
monies on behalf of Customer may be dependent on equivalent payments or receipts
being received or made by or for other customers of FDR and in respect of
transactions involving Transaction Cards issued by such other customers. FDR and
Customer will cooperate and use all reasonable resources to identify the reason
for any settlement failure and shall attempt to work to its resolution.
COMPLIANCE WITH INSTRUCTIONS. FDR shall be entitled without further inquiry to
execute or otherwise act upon (a) instructions or information or purported
instructions or information received through the MasterCard and VISA payment
systems and instructions or information, or (b) purported instructions or
information received in accordance with the MasterCard and VISA rules or
settlement manuals otherwise than through the payment systems or in accordance
with the FDR Settlement Rules notwithstanding that it may afterwards be
discovered that the instructions or information were not genuine or were not
initiated by Customer. Such execution or action shall constitute a good
discharge to FDR, and FDR shall not be liable for any liability, damage,
expense, claim or loss (including loss of business, loss of profit or exemplary,
punitive, special, indirect or consequential damages of any kind) whatsoever
arising in whatever manner, directly or indirectly, from or as a result of the
execution or action.
Exh. F - 2
<PAGE>
RESTRICTIONS ON SETOFF. Customer agrees to discharge its Interchange Settlement
obligations to FDR under this Exhibit F in full and on first written demand
waiving any defense, setoff or right of counterclaim (without prejudice to the
ability of Customer to pursue these independently) and notwithstanding any act
or omission or alleged act or omission or any insufficiency or deficiency that
there is or has been or that may be alleged in the performance by FDR of its
obligations under this Agreement or otherwise. FDR agrees, however, that it
shall not setoff against any payment to be made by it to Customer or on their
behalf pursuant to this Exhibit F any amount due and payable by Customer to FDR
(without prejudice to the ability of FDR to pursue these independently) other
than amounts due and payable by Customer or on their behalf to FDR pursuant to
this Exhibit F.
TRAILING ACTIVITY. If Customer terminates this Agreement or if Customer ceases
to obtain processing services from FDR under this Agreement in a manner which
results in fees or charges relating to Customer's Accounts continuing to be
included as a part of FDR's net settlement with MasterCard or VISA, FDR may
obtain daily payment from the Settlement Account established under the first
paragraph of this Exhibit F or Customer will provide FDR immediately upon notice
with access to an account of Customer's funds, not requiring signature, which
FDR may draw upon in order to receive payment for such fees and charges. FDR
will provide Customer with documentation for all fees and charges paid on behalf
of Customer.
DELETION, TRANSFER OR ABANDONMENT OF BINS AND ICAS. Customer will notify FDR in
writing at least one hundred twenty (120) days prior to any transfer or closing
of all Customer accounts on the FDR System associated with a BIN or ICA
belonging to Customer or the redirection of any BIN or ICA by Customer to
another processing system. Such notice shall include an instruction to FDR to
initiate a systematic removal from the FDR System of account information
associated with that BIN or ICA, which Customer shall be obligated to pay for in
accordance with Section 4.8 of this Agreement. Customer will comply with all
rules, regulations and policies of MasterCard and VISA with respect to removal
or deletion of unused or abandoned BINs or ICAs. In the event that Customer
fails to comply with such rules, regulations and policies, or fails to provide
the foregoing notice to FDR, Customer hereby authorized FDR, as its agent, to
(i) request MasterCard or VISA to delete the BIN or ICA, and (ii) remove all
account information associated with the BIN or ICA from the FDR System at
Customer's expense, in accordance with Section 4.8 of this Agreement. Customer
shall be responsible, and will reimburse FDR, for any loss, expense or other
cost associated with or arising from abandoned or unused BINs and ICAs,
including trailing activity, fraudulent use or other similar costs.
Exh. F - 3
<PAGE>
EXHIBIT G
---------
PERFORMANCE GUIDELINES
1. AUTHORIZATION SYSTEM AVAILABILITY--SYSTEM
CRITERIA:
The time the authorization on-line system is available to respond to
Cardholder Authorization Inquiries.
STANDARD:
The authorization on-line system will be available via primary or backup
to respond to authorization inquiries 24 hours per day, 7 days per week
for 99% of the total minutes in the month.
2. ON-LINE AVAILABILITY
CRITERIA:
The production on-line system will be available for inquiry and
maintenance transactions, excluding scheduled maintenance or pre-notified
maintenance (including major implementations) during the specified
periods. Any problems (other than those noted) that impact Customer in
some way are considered an "outage" and are calculated as such. On-line
availablity is measured by the total number of minutes the production
on-line system is available.
STANDARD:
The production on-line system will be available for inquiry 98.5% of the
time.
3. ON-LINE SYSTEM UPDATED
CRITERIA:
The time all critical on-line files become current and available, for
that processing cycle, with monetary and non-monetary transactions. The
"common" on-line files are included in this measurement: Collections,
Memos, Aphas, B&S, CIS, Non-Mon display, Security.
Exh. G - 1
<PAGE>
STANDARD:
The production on-line system will be updated and current for monetary
and non-monetary entry by 7 a.m. CTZ each processing day for 90% of that
month's processing days. This includes the "common" on-line files.
4. POSTINGS, MONETARY/NON-MONETARY
CRITERIA:
Monetary and/or non-monetary data files received from Customer.
Customer's data files will be received by FDR via one of three methods:
transmitted, mailed, or via courier.
Time of Receipt--The time Customer's last incoming file is received in
the Omaha Data Center. If the file is a transmitted file, the item the
transmission job completes in Omaha is the time of receipt for that file.
If the file is a mailed in or a courier file, the time of receipt is the
time the file actually is received in the Input/Output Control area with
the Omaha Data Center.
STANDARD:
Monetary and/or non-monetary files received in the Omaha Data Center by 5
p.m. CTZ will be processed in that night's production processing cycle
for 90% of the production cycles for the month and by the next night's
production processing cycle for 100% of the production cycles for the
month.
5. LETTERS--CARDHOLDER
CRITERIA:
This product is designed to afford Customer the ability to create
nonstatement correspondence to its Cardholders with state-of-the-art
forms design software that can print logos, signatures, and custom
formats.
STANDARD:
The volume of Letters mailed 50% by the end of the second (2nd) Business
Day, 98% by the end of the third (3rd) Business Day, 100% by the end of
the fourth (4th) Business Day for each month's volume, with the exception
of Customer caused delays such as holds, re-runs, incorrect file
settings, etc.
Exh. G - 2
<PAGE>
6. STATEMENTS--CARDHOLDER
CRITERIA:
An indication of the number of Cardholder Statements that have been
printed and processed from the mail facility--the majority of which have
been zip sorted and turned over to the U.S. Postal Service for delivery
to Customer's Cardholders within the specified time frames.
STANDARD:
Cardholder Statements are mailed by the end of the third (3rd) Business
Day following Cycle Date for 75% of each month's volume, 95% by the end
of the fourth (4th) Business Day, and 100% by the end of the fifth (5th)
Business Day with the exceptions of Customer caused delays such as holds,
re-runs, incorrect file settings, etc.
7. CARDHOLDER STATEMENT/LETTER/NOTICE ACCURACY
CRITERIA:
Accuracy is based on the number of Cardholder Statements, Letters, and
Notices to the Cardholder that are correctly processed and mailed with
inserts, envelopes and forms.
STANDARD:
Statements, Letters, and Notices to the Cardholder are accurate for
99.95% of the items.
8. REPORTS--DAILY ON-LINE
CRITERIA:
On-line reports containing "daily" Customer information are available for
Customer viewing by 12 p.m. CTZ. These reports are verified with a time
stamp on WSF2EVT 1-3. Customer makes the determination as to which
reports are made available to it. The on-line information is based on the
previous day's business.
STANDARD:
"Critical" On-line reports are made available by 12 p.m. CTZ, on the
first Business Day following Cycle Date.
Exh. G - 3
<PAGE>
9. REPORTS--MONTHLY ON-LINE
CRITERIA:
On-line reports containing "monthly" Customer information are available
for Customer viewing by the end of the fifth (5th) Business Day
following Cycle Date. These reports are verified with a time stamp on
WSF2EVT 1-3. Customer makes the determination as to which reports are
made available to it. The monthly on-line information is based on the
previous month's business.
STANDARD:
On-line reports are made available by the end of the fifth (5th) Business
Day following Cycle Date.
10. DAILY RMS TRANSMITTED REPORT FILES
CRITERIA:
Accurate Customer reports will be transmitted within the specified time
frame.
Standard:
Daily transmission files will be made available at a mutually agreed upon
time between FDR and Customer as report files are identified. The
standard time for availability will vary. This will be determined based
on the time the file is created within cycle.
11. MONTHLY RMS TRANSMITTED REPORT FILES
CRITERIA:
Accurate Customer reports will be transmitted within the specified time
frame.
STANDARD:
Monthly reports will be transmitted by the end of the fifth (5th)
Business Day following month end reports Cycle Date for 100% of each
month's volume.
Exh. G - 4
<PAGE>
12. CD-ROM/DVD-ROM TIMELINESS
CRITERIA:
FDR's Digital ROM Services provider of original CD-ROM/DVD-ROM offering
media options to archive/retrieve/distribute statement, report, and other
information.
CD-ROM store over 100,000 Enterprise statements, and 250,000 report pages
per disc. Each disc contains free viewer software enabling Customer to
instantly query and alphanumeric item on the disc. No special hardware is
required.
STANDARD:
CD-ROM/DVD-ROM will be produced and mailed by the end of the fourth (4th)
Business Day following Cycle Date for 97% of each months volume. 100%
will be produced and mailed by the fifth (5th) Business Day.
13. ACCD TRANSMISSIONS
CRITERIA:
Automated Collection Call Distributor file produced by FDR for direct
transmission to Customer.
STANDARD:
95% of each months daily ACCD files will be available for transmission by
6:00 a.m. CTZ following the completion of daily processing.
14. EMBOSSING ORDERS
CRITERIA:
Cardholder embossing orders produced as a result of daily update cycle or
entered electronically will be mailed within the specific time frame.
This does not include plastic holds and plastic destruction requests by
the client and assumes purges are requested by 5 p.m. CTZ day 1.
STANDARD:
Cardholder embossing orders entered electronically will be mailed within
three Business Days for 95% of each month's volume.
Exh. G - 5
<PAGE>
15. EMBOSSING ORDERS - REISSUES
CRITERIA:
The number of plastics mailed within the specific time frame.
STANDARD:
Cardholder reissued account plastics produced as a result of FDR's
monthly reissue programs will be mailed within fifteen (15) business days
after the automatic purge date established by Customer on the product
control file for 100% of Cardholder plastics scheduled for reissue each
month.
16. SETTLEMENT SCREENS
CRITERIA:
The update and release of the Customer's final daily settlement position
with FDR. Once these screens are updated and released, Customer can
access the information via the ZD09 and ZD16 screens.
STANDARD:
The final settlement wire transfer figure will be available to the client
by 12 p.m. CTZ 90% of the time and by 12:30 p.m. CTZ 100% of the time.
DEFINITIONS:
"Business Day" is defined as Monday through Friday. (with the exception of any
Federally observed holidays)
"CTZ" is Central Time Zone.
"Cycle Date" is defined as processing date.
Exh. G - 6
AGREEMENT FOR INFORMATION
TECHNOLOGY SERVICES
BETWEEN
FIDELITY FEDERAL BANK
AND
ELECTRONIC DATA SYSTEMS CORPORATION
AND
EDS INFORMATION SERVICES L.L.C.
<PAGE>
AGREEMENT FOR INFORMATION TECHNOLOGY SERVICES
THIS AGREEMENT FOR INFORMATION TECHNOLOGY SERVICES ("Agreement") is
between Electronic Data Systems Corporation ("EDS"), a Delaware corporation with
an address at 5400 Legacy Drive, Plano, Texas 75024, EDS Information Services
L.L.C., ("EIS") a Delaware limited liability company with an address at 5400
Legacy Drive, Plano, Texas 75024, (all references to EDS in this Agreement will
be deemed to include EIS) and FIDELITY FEDERAL BANK ("CUSTOMER"), A FINANCIAL
INSTITUTION WITH AN ADDRESS AT 600 NORTH BRAND BOULEVARD, GLENDALE, CA 91203.
WHEREAS, Customer desires to purchase certain information technology
services from EDS, itself and through various of EDS' indirect, wholly-owned,
United States-based subsidiaries, including EIS.
NOW, THEREFORE, Customer and EDS hereby agree as follows:
ARTICLE I - DEFINITIONS
1.1 Definitions. In this Agreement:
(a) "Additional Services" are the Services described in Section 3.1(d).
(b) "Basic Services" are the Services listed in Schedule A.
(c) "Business Day" is each weekday, Monday through Friday, which is not
a holiday of Customer.
(d) "Conversion Services" are the Services described in Section 3.1(c).
(e) "Customer Systems" are the Systems listed in Schedule D to be
provided by Customer for use in conjunction with EDS Systems.
(f) "Data Center" is the space at one or more locations where EDS
performs Services, excluding Customer locations.
(g) "EDS Systems" are all Systems, except for Systems provided by
Customer, used by EDS to provide Services, including without
limitation any improvements, modifications, or enhancements made by
EDS to any System and provided to Customer under this Agreement.
(h) "Effective Date" is the date that this Agreement is executed by EDS
pursuant to Section 9.10.
(i) "Equipment" is all telecommunications lines, modems, and other
equipment, including without limitation terminals, control units,
ports, logical units, and all related data transmission services
required by EDS for Customer to access the EDS Systems, transmit
data to EDS, and receive reports and other output from EDS.
(j) "Initial Term" is defined in Section 2.1.
(k) "Operational Date" is the later of (i) the Effective Date, or (ii)
the first day of the calendar month in which any Conversion Services
are completed and Customer has the capability to input transactions
or data for processing by EDS.
(l) "Optional Services" are the Services listed in Schedule B.
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(m) "PC Software" means, if applicable, the PC-based software
applications to be utilized by Customer in connection with the
Services, as such software applications are described in Schedule A.
(n) "Renewal Terms" is defined in Section 2.1.
(o) "Service" or "Services" are all of the services to be provided by
EDS under this Agreement, which include the Basic Services, Optional
Services, Conversion Services, and Additional Services.
(p) "System" or "Systems" are (i) computer programs, including without
limitation software, firmware, application programs, operating
systems, files, and utilities; (ii) supporting documentation for
such computer programs, including without limitation input and
output formats, program listings, narrative descriptions, operating
instructions and procedures, user and training documentation,
special forms, and source code; and (iii) the tangible media upon
which such programs are recorded, including without limitation
chips, tapes, disks, and diskettes.
Other terms are defined elsewhere in this Agreement.
ARTICLE II - TERM
2.1 TERM. This Agreement will begin on the Effective Date and, unless
terminated earlier under Section 7.2, 7.3, 7.4, 7.5, or 9.5, will continue
for a period of five (5) years from the Operational Date (the "Initial
Term"). Unless either party gives the other party written notice of intent
to terminate, at least twelve (12) months prior to the expiration date of
the Initial Term, then this Agreement will automatically renew for an
additional two (2) years (the "Renewal Term"). Thereafter, unless either
party gives the other party written notice of intent to terminate, at
least twelve (12) months prior to the expiration date of the Renewal Term,
then this Agreement will automatically renew for an additional two (2)
years and continue until either party terminates this Agreement under the
foregoing terms.
ARTICLE III - EDS RESPONSIBILITIES
3.1 SERVICES PROVIDED. EDS or its subcontractors will provide Customer with
the following Services:
(a) BASIC SERVICES. Customer's requirements for Basic Services.
(b) OPTIONAL SERVICES. The Optional Services that Customer requests and
EDS agrees to provide.
(c) CONVERSION SERVICES. On a mutually agreeable schedule EDS will
provide those services and instructions ("Conversion Services")
reasonably required for Customer to convert to and use the EDS
Systems. Customer will cooperate in the conversion effort and timely
provide whatever information, data, clerical and office support,
management decisions, approvals, and signoffs that EDS reasonably
requires. According to a plan to be developed by Customer and EDS,
EDS will train a mutually designated group of Customer's personnel
in the proper use of the EDS Systems to enable such personnel to
train Customer's user personnel in the use of the EDS Systems.
Customer will cooperate with EDS in scheduling training in
conjunction with Customer's conversion to the EDS Systems.
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(d) ADDITIONAL SERVICES. If Customer requests EDS to perform any Service
which is not a Basic Service, an Optional Service, or a Conversion
Service, then EDS may provide such service as an "Additional
Service".
3.2 GENERAL TERMS RELATING TO SERVICES. EDS will:
(a) Beginning on the Operational Date, operate the EDS Systems at the
Data Center, and accept data and other input from Customer. EDS will
make daily, monthly, and other reports and output, including
specially requested reports, available to Customer at the Data
Center for delivery or transmit them to Customer, subject to
Customer's timely delivery or transmission of data and other input
to the Data Center for processing. EDS will provide the Services in
accordance with the schedule provided to Customer by EDS upon
commencement of the Services, which may be updated by EDS from time
to time. EDS will not be responsible for the loss of any input or
output during transit.
(b) Provide all Equipment at Customer's expense, including related
shipping, installation, and maintenance charges, and advise Customer
on the compatibility of its Equipment with the EDS Systems. Customer
may elect, with EDS' approval, to provide such Equipment at
Customer's expense, subject to charges for Additional Services
required for EDS Systems access or configuration.
(c) Provide for Customer's use one copy of EDS' standard user
documentation and one copy of any revisions describing the
preparation of input for and use of output from the EDS Systems.
Such documentation will address the reports provided under this
Agreement. Upon Customer's request, EDS will provide additional
copies of such documentation at EDS' then standard charges.
(d) Correct any errors in customer files that result in errors in
reports or other output where such errors (i) are due solely to
either malfunctions of EDS' equipment or the EDS Systems or errors
of EDS' operators, programmers, or other personnel, and (ii) are
called to EDS' attention within the time frames specified in Section
4.3. EDS will, to the extent reasonably practicable, correct any
other errors as an Additional Service.
(e) Provide standard EDS forms for use at the Data Center.
(f) Establish, modify, or substitute from time to time any Equipment,
processing priorities, programs, or procedures used in the operation
of the EDS Systems or the provision of the Services that EDS
reasonably deems necessary, and notify Customer of any such changes
that will affect Customer's operations.
(g) With respect to Year 2000, as part of the Services, EDS will use
commercially reasonable efforts (a) with respect to EDS Systems
which are proprietary to EDS, to provide those improvements and
enhancements to such Systems so that they will maintain the
functionality existing as of the Effective Date taking into account
any processing, accepting, calculating, writing and outputting of
times or dates, or both, whether before, on or after 12:00 a.m.
January 1, 2000, and any time periods determined or to be determined
based on any such times or dates, or both, and (b) with respect to
EDS Systems which are not proprietary to EDS, to obtain from the
third party vendor thereof, those improvements and enhancements to
such Systems so that they will maintain the functionality existing
as of the Effective Date taking into account any processing,
accepting, calculating, writing and outputting of times or dates, or
both, whether before, on or after 12:00 a.m. January 1, 2000, and
any time periods determined or to be determined based on any such
times or dates, or both. Customer acknowledges and agrees that EDS
will not be responsible for (i) changes, modifications, updates or
3
<PAGE>
enhancements to, and any inaccuracies, delays, interruptions or
errors caused by, interfaces between the EDS Systems and any
software or systems which EDS does not operate or maintain as part
of the Services, (ii) any inaccuracies, delays, interruptions or
errors occurring as a result of incorrect data or data from other
systems, software, hardware, processes or third parties provided in
a format that is inconsistent with the format and protocols
established for EDS Systems including date data in two digit format,
even if such data is required for the operation of the EDS
proprietary software or systems, and (iii) any inaccuracies, delays,
interruptions or errors occurring as a result of incorrect data or
data from telecommunication hardware or systems.
3.3 AUDITS. EDS will provide auditors and inspectors that Customer designates
in writing with reasonable access to the Data Center for the limited
purpose of performing audits or inspections of Customer's business. EDS
will provide to such auditors and inspectors reasonable assistance, and
Customer will compensate EDS for any Additional Services provided in
connection with the audit or inspection. EDS will not be required to
provide access to data of other EDS customers.
3.4 REGULATORY COMPLIANCE. EDS will endeavor to maintain the EDS Systems so
that they will not be disapproved by any federal or state regulatory
authority with jurisdiction over Customer's business. If Customer believes
that any modifications to the EDS Systems are required under any laws,
rules, or regulations, Customer will promptly so inform EDS. EDS will
perform any modifications to the EDS Systems or recommend changes to
operating procedures of Customer that EDS determines are necessary or
desirable; provided, that if any such changes or modifications result in a
significant increase in EDS' cost of providing Services, EDS will be
entitled to increase the charges under this Agreement by an amount that
reflects a pro rata allocation of EDS' increased cost among the applicable
EDS customers. New or enhanced EDS System features, functions, reports, or
other Services that may result from such modifications or recommendations
may be provided as an Additional Service. Notwithstanding the foregoing,
Customer acknowledges that the EDS Systems may, from time to time, consist
in part of System(s) licensed by EDS from third-party vendor(s) and,
therefore, EDS shall have no duty or responsibility to modify any such
third-party System under this Section, except to the extent that the
vendor thereof has such a duty or responsibility to modify such System
pursuant to the applicable license agreement between EDS and such vendor.
3.5 FINANCIAL STATEMENTS AND EDP AUDIT. Upon request, EDS will provide at no
charge one copy of EDS' most recent audited financial statements to
Customer. Upon request, EDS will also provide to Customer one copy of EDS'
most recent independent Data Center EDP audit at EDS' then standard charge
for such copy.
3.6 PC SOFTWARE. EDS will either (i) license to Customer or (ii) arrange with
the appropriate third party vendor for a direct license, or a sublicense
through EDS, to Customer of the PC Software. Customer will execute any
such license or sublicense that may be required by such vendor and will be
responsible for compliance with all terms and conditions thereof. Such
license or sublicense will provide for Customer to have the use of the PC
Software at all times during the term of this Agreement.
ARTICLE IV - CUSTOMER RESPONSIBILITIES
4.1 MAINTENANCE OF EQUIPMENT. Customer will maintain all Equipment owned or
leased by Customer in good working order in accordance with manufacturer's
specifications.
4
<PAGE>
4.2 PROVISION OF CUSTOMIZED FORMS. Unless otherwise agreed in writing,
Customer will provide or pay for all customized forms required by
Customer. These forms will conform to EDS' reasonable specifications.
Customer will also provide all forms produced or printed at Customer's
premises and required for the performance of Services, or will pay
mutually agreed charges to EDS for such forms if provided by EDS at
Customer's request.
4.3 CORRECTION OF REPORTS AND OUTPUT. Customer will balance reports to verify
master file information and will inspect and review all reports and other
output (whether printed, microfiched or electronically transmitted)
created from data provided by Customer to EDS. Customer will reject all
incorrect reports or output (i) within two Business Days after receipt of
daily reports or output, (ii) within five Business Days after receipt of
annual, quarterly, or monthly reports or output, and (iii) within three
Business Days after receipt of all other reports or output.
4.4 PROVISION OF DATA. Customer will be responsible for the quality and
accuracy of all data and other input provided to EDS. EDS may, at its
option, return to Customer for correction before processing any data
submitted by Customer which is incorrect, illegible, or not in proper
form. If Customer does not provide its data to EDS in accordance with EDS'
specified format and schedule, EDS will use reasonable efforts to
reschedule and process the data as promptly as possible. Related expenses
incurred by EDS will be charged to Customer.
4.5 USE OF SYSTEM, PROCEDURES, ETC. Customer will comply with all operating
instructions for the EDS Systems which are issued by EDS from time to
time. Except as otherwise provided in this Agreement, Customer will be
responsible for the supervision, management, and control of its use of the
EDS Systems, including without limitation (i) implementing sufficient
procedures to satisfy its requirements for the security and accuracy of
the data and other input Customer provides, (ii) implementing reasonable
procedures to verify reports and other output from EDS within the time
frames specified in Section 4.3, and (iii) specifying the methods of
accrual calculation to be used by EDS in providing the Services from the
options available in the EDS Systems.
4.6 CUSTOMER SYSTEMS. Customer will provide, at Customer's expense, the
Customer Systems. Customer will be responsible for any license or
maintenance fees related to providing the Customer Systems for use by EDS
in connection with the Services. Customer will, at Customer's expense,
ensure that the Customer Systems are at all times compatible with the EDS
Systems and EDS will have no liability hereunder for any delay or failure
to perform Services which arises as a result of the failure of Customer to
maintain any Customer System so that it is compatible with the EDS
Systems.
4.7 PC SOFTWARE.
(a) Notwithstanding Section 3.2(b), Customer will, at Customer's
expense, provide and be responsible for all Equipment required for
Customer to use the PC Software ("PC Software Equipment").
(b) Without EDS' prior written consent, Customer will not (i) install
any System other than the PC Software on the applicable PC Software
Equipment; (ii) sell, assign, lease, transfer, or disclose to any
third party the PC Software, (iii) use the PC Software for the
commercial benefit of any third party; (iv) copy or reproduce the PC
Software; or (v) reverse assemble, reverse compile, or otherwise
recreate the PC Software. Customer may transfer its use of the PC
Software to a backup or replacement system to the PC Software
Equipment on a temporary or permanent basis provided Customer gives
prior written notice to EDS and discontinues use of the PC Software
on the applicable PC Software Equipment.
5
<PAGE>
ARTICLE V - PAYMENTS TO EDS
5.1 SERVICE CHARGES. Customer will pay EDS for the Services as follows:
(a) For Basic Services, the monthly charges listed in Section 1 of
Schedule C.
(b) For Conversion Services, the applicable conversion charge listed in
Section 2 of Schedule C.
(c) For Optional Services, the monthly charges listed in Schedule B.
(d) For Additional Services, EDS' then standard charges for such
Services, or, if EDS then has no standard charges for such Services,
upon whatever other basis that the parties agree.
5.2 ADDITIONAL CHARGES. Customer will also pay EDS the following, if
applicable:
(a) All costs incurred by EDS (i) in mailing reports or other output to
Customer, its customers, or third parties, and (ii) in transporting,
shipping, or delivering reports, output, or input between the Data
Center and Customer's locations.
(b) All actual, out-of-pocket costs and expenses, including, without
limitation, travel and travel-related expenses, which are incurred
by EDS in providing Services when incurred at Customer's request.
(c) Any other charges expressly provided in this Agreement.
(d) All taxes, however designated or levied, based upon any charges
under this Agreement, or upon this Agreement or the Systems,
Services, or materials provided hereunder, or their use, including
without limitation state and local privilege or excise taxes based
on gross revenue, sales and use taxes, and any taxes or amounts in
lieu thereof paid or payable by EDS in respect of the foregoing,
exclusive, however, of franchise taxes and taxes based on the net
income of EDS.
5.3 TIME OF PAYMENT. All charges under this Agreement will be due and payable
within ten days of invoice date. Any charges not paid within thirty days
of invoice date will bear interest until paid at a rate equal to the
lesser of 1.5% per month or the maximum interest rate allowed by
applicable law. Customer authorizes EDS to collect charges for Services
through applicable clearing house procedures.
5.4 ANNUAL ADJUSTMENT TO CHARGES. The charges set forth in Section 5.1 will be
subject to the adjustments described in Schedule E.
ARTICLE VI - SYSTEMS, DATA, AND
CONFIDENTIALITY
6.1 EDS SYSTEMS. All EDS Systems are and will remain the exclusive property of
EDS or licensors of such EDS Systems, as applicable, and, except as
expressly provided in this Agreement, Customer shall have no ownership
interest or other rights in any EDS System. Customer acknowledges that the
EDS Systems include EDS proprietary information and agrees to keep the EDS
Systems confidential at all times. Upon the expiration or termination of
this Agreement, Customer will return all copies of all items relating to
the EDS Systems which are in the possession of Customer and certify to EDS
in writing that Customer has retained no material relating to the EDS
Systems.
6.2 CUSTOMER'S INFORMATION. Information relating to Customer or its customers
contained in Customer's data files is the exclusive property of Customer
and EDS will only be the custodian of that information. EDS agrees to hold
in confidence all proprietary information of Customer and its customers
provided to EDS in accordance with Section 6.3. However, upon the request
of any appropriate federal or state regulatory authority with jurisdiction
6
<PAGE>
over Customer's business and after EDS has, when reasonably possible,
notified Customer of such request, EDS will allow such authority access to
all records and other information of Customer and its customers in the
possession of EDS and provide as an Additional Service any related
assistance that is required. Promptly after the termination or expiration
of this Agreement and the payment to EDS of all sums due and owing,
including without limitation any amounts due under Sections 7.6 or 7.7,
EDS will, at Customer's request and expense, return to Customer all of
Customer's information, data, and files in EDS' then standard
machine-readable format and media.
6.3 CONFIDENTIALITY. Except as otherwise provided in this Agreement, EDS and
Customer each agree that all information communicated to one by the other
or the other's affiliates, whether before or after the Effective Date,
will be received in strict confidence, will be used only for purposes of
this Agreement, and except for the requirements of Section 6.2 will not be
disclosed by the recipient party, its agents, subcontractors, or employees
without the prior written consent of the other party. Each party agrees to
take all reasonable precautions to prevent the disclosure to outside
parties of such information, including, without limitation, the terms of
this Agreement, except as required by legal, accounting, or regulatory
requirements beyond the reasonable control of the recipient party. If
Customer is required to disclose any proprietary information of EDS in
accordance with any such legal, accounting, or regulatory requirements,
then Customer will promptly notify EDS of such requirement and will
cooperate with EDS (at EDS' expense) in EDS' efforts, if any, to avoid or
limit such disclosure (including, without limitation, obtaining an
injunction or an appropriate redaction of the proprietary information in
question). The provisions of this Section will survive the expiration or
termination of this Agreement for any reason.
6.4 SAFEGUARDING DATA INTEGRITY. EDS will maintain internal computer data
integrity safeguards (such as access codes and passwords) to protect
against the accidental or unauthorized deletion or alteration of
Customer's data in the possession of EDS. EDS will provide additional
internal computer data integrity safeguards that Customer reasonably
requests as an Additional Service. EDS will also employ and maintain
controlled access systems in the Data Center.
6.5 CONTINGENCY PLANNING. The parties' will perform the following regarding
contingency planning:
(a) EDS will develop, maintain and, as necessary in the event of a
disaster, execute a disaster recovery plan (the "EDS Plan") for the
Data Center and will provide to Customer and its auditors and
inspectors such access to the EDS Plan as Customer may reasonably
request from time to time. EDS will not be required to provide
access to information of other EDS customers.
(b) Customer will develop, maintain and, as necessary in the event of a
disaster, execute a business resumption plan (the "Customer Plan")
for all Customer locations and the telecommunications links between
the Customer locations and the Data Center and will provide to EDS
such access to the Customer Plan as EDS may reasonably request from
time to time.
(c) EDS will provide to Customer such information as may be reasonably
required for Customer to assure that the Customer Plan is compatible
with the EDS Plan.
(d) Each party will be responsible for the training of its own personnel
as required in connection with all applicable contingency planning
activities.
(e) Each party's contingency planning activities will comply, as
appropriate, with such of the following regulatory policies as may
be applicable to Customer's business, as the same may be amended or
replaced from time to time: (i) Federal Deposit Insurance
Corporation Bank Letter BL-22-89 dated July 14, 1989; (ii) Federal
Reserve System Supervision and Regulation Number SR 89-16 dated
August 1, 1989; and (iii) Office of the Comptroller of the Currency
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Banking Circular Number BC177 dated July 12, 1989. If compliance
with any amendments or replacements of the policies listed above
would significantly increase EDS' cost of providing Services, EDS
will be entitled to increase the charges under this Agreement by an
amount that reflects a pro rata allocation of EDS' increased cost
among the applicable EDS customers.
ARTICLE VII - TERMINATION AND
RELATED MATTERS
7.1 ARBITRATION. Any dispute, controversy, or claim arising out of, connected
with, or relating to this Agreement, or the breach, termination, validity,
or enforceability of any provision of this Agreement, will be resolved by
final and binding arbitration by a panel of three arbitrators in
accordance with and subject to the Commercial Arbitration Rules of the
American Arbitration Association ("AAA") then in effect. Following notice
of a party's election to require arbitration, each party will within
thirty days select one arbitrator, and those two arbitrators will within
thirty days thereafter select a third arbitrator. If the two arbitrators
are unable to agree on a third arbitrator within thirty days, the AAA will
within thirty days thereafter select such third arbitrator. Discovery as
permitted by the Federal Rules of Civil Procedure then in effect will be
allowed in connection with arbitration to the extent consistent with the
purpose of the arbitration and as allowed by the arbitrators. Judgment
upon the award rendered in any arbitration may be entered in any court of
competent jurisdiction, or application may be made to such court for a
judicial acceptance of the award and an enforcement, as the law of the
state having jurisdiction may require or allow. During any arbitration
proceedings, EDS will continue to provide Services, and Customer will
continue to make payments to EDS in accordance with this Agreement. The
fact that arbitration is or may be allowed will not impair the exercise of
any termination rights under this Agreement.
7.2 TERMINATION DUE TO ACQUISITION. If fifty percent or more of the stock or
assets of Customer are acquired by another person or entity, whether by
merger, reorganization, sale, transfer, or other similar transaction, then
EDS and Customer will negotiate in good faith the terms and conditions
upon which this Agreement may be modified to accommodate such transaction.
If the parties are unable to agree upon such modification, either party
upon written notice to the other may terminate this Agreement upon the
consummation of such acquisition or on a mutually agreeable date
thereafter.
7.3 TERMINATION FOR NON-PAYMENT. If Customer defaults in the payment of any
charges or other amounts due under this Agreement and fails to cure such
default within ten days after receiving written notice specifying such
default, then EDS may, by giving Customer at least thirty days prior
written notice thereof, terminate this Agreement as of a date specified in
such notice.
7.4 TERMINATION FOR CAUSE. If either party materially defaults in its
performance under this Agreement, except for non-payment of amounts due to
EDS, and fails to either substantially cure such default within ninety
days after receiving written notice specifying the default or, for those
defaults which cannot reasonably be cured within ninety days, promptly
commence curing such default and thereafter proceed with all due diligence
to substantially cure the default, then the party not in default may, by
giving the defaulting party at least thirty days prior written notice
thereof, terminate this Agreement as of a date specified in such notice.
7.5 TERMINATION FOR INSOLVENCY. If either party becomes or is declared
insolvent or bankrupt, is the subject of any proceedings relating to its
liquidation or insolvency or for the appointment of a receiver,
conservator, or similar officer, or makes an assignment for the benefit of
all or substantially all of its creditors or enters into any agreement for
the composition, extension, or readjustment of all or substantially all of
its obligations, then the other party may, by giving prior written notice
thereof to the non-terminating party, terminate this Agreement as of a
date specified in such notice.
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7.6 PAYMENT UPON TERMINATION. The parties acknowledge that upon termination of
this Agreement for any reason, including under Section 7.2, 7.3, 7.4, or
7.5 (but excluding by election by either party not to renew pursuant to
Section 2.1 or termination by Customer pursuant to Section 7.4 or 9.5),
EDS will incur damages resulting from such termination that will be
difficult or impossible to ascertain. Therefore, prior to such termination
and in addition to all other amounts then due and owing to EDS, Customer
will pay to EDS as reasonable liquidated damages an amount equal to the
sum of subsections (a) and (b):
(a) All costs reasonably incurred by EDS in connection with such
termination, including without limitation telecommunication line
disengagement expenses and costs of terminating leases on or
shipping or storing any Equipment provided to Customer by or through
EDS under this Agreement, plus a twenty-five percent management fee
on such costs, plus EDS' charges for any Additional Services
reasonably requested by Customer for deconversion assistance and
EDS' then standard charges for the resources utilized to prepare any
test or conversion tapes (together, the "Termination Costs"). EDS
may, at its option, invoice Customer for the lesser of (i) EDS' good
faith estimate of the Termination Costs, or (ii) the aggregate of
the charges payable to EDS pursuant to Article V for the two
calendar months preceding the month in which notice of termination
is given. If the actual Termination Costs are greater or less than
the amount of EDS' invoice that is paid by Customer under the
immediately preceding sentence, then Customer will pay EDS, or EDS
will refund to Customer, as the case may be, the difference between
the actual Termination Costs and the amount paid.
(b) Eighty percent of the total compensation which would have been paid
or reimbursed to EDS under this Agreement during the remainder of
its term. The amount of total compensation will be computed by
multiplying the total number of months remaining in the Initial Term
or the Renewal Term then in effect from the effective date of the
termination by the average monthly charge to Customer for Services
under this Agreement during the twelve calendar months immediately
preceding the calendar month in which notice of termination was
given, and multiplying that number by eighty percent. This is
expressed mathematically as follows:
(Number of months remaining in term) x (average monthly charge for
Services during the twelve months preceding notice of termination) x
0.80
If this Agreement has been in effect less than twelve calendar
months prior to the giving of the notice of termination, then the
parties will compute the amount due under this subsection (b) using
the average monthly charge for Services made during such lesser
number of calendar months. If termination of this Agreement occurs
prior to the Operational Date, then the parties will compute the
amount due under this subsection (b) assuming that the Operational
Date had occurred when scheduled by EDS and using the average
monthly charges reasonably estimated to be paid by Customer.
All amounts payable under this Section 7.6 will be invoiced and paid prior
to the effective date of such termination and prior to the release of any
test tapes or other data of Customer.
7.7 PAYMENT UPON NONRENEWAL. If Customer gives or receives notice not to renew
this Agreement pursuant to Section 2.1, or Customer terminates this
Agreement under Section 9.5, Customer will pay to EDS an amount equal to
all amounts then due and payable to EDS, plus (a) EDS' charges for any
Additional Services reasonably requested by Customer for deconversion
assistance, (b) EDS' then standard charges for the resources utilized to
prepare any test or conversion tapes, and (c) all other costs reasonably
9
<PAGE>
incurred by EDS in connection with such election not to renew or
termination that are described in Section 7.6(a) and that relate to
obligations that Customer approved, which extend beyond the then current
term of this Agreement or earlier termination date under Section 9.5. All
amounts payable under this Section 7.7 will be invoiced and paid prior to
the expiration date and prior to the release of any test tapes or other
data of Customer.
ARTICLE VIII - LIABILITY AND INDEMNITY
8.1 LIMITATION OF LIABILITY. Section 3.2(d) sets forth Customer's exclusive
remedies for errors in reports or other output provided by EDS under this
Agreement. If EDS becomes liable to the Customer under this Agreement for
any other reason, whether arising by negligence, willful misconduct or
otherwise, then (a) the damages recoverable against EDS for all events,
acts, delays, or omissions will not exceed in the aggregate the
compensation payable to EDS pursuant to Section 5.1 of this Agreement for
the lesser of the months that have elapsed since the Operational Date or
the three months ending with the latest month in which occurred the
events, acts, delays, or omissions for which damages are claimed, and (b)
the measure of damages will not include any amounts for indirect,
consequential, or punitive damages of any party, including third parties,
or damages which could have been avoided had the output provided by EDS
been verified before use. Customer may not assert any cause of action
against EDS of which the Customer knew or should have known more than two
years prior to such assertion. In connection with the conduct of any
litigation with third parties relating to any liability of EDS to Customer
or to such third parties, EDS will have all rights which are appropriate
to its potential responsibilities or liabilities. EDS will have the right
to participate in all such litigation and to settle or compromise its
liability to third parties.
8.2 WARRANTY. EDS will provide the Services in a professional and workmanlike
manner. EXCEPT AS EXPRESSLY PROVIDED IN THIS SECTION 8.2, EDS DISCLAIMS
ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, IN FACT OR BY OPERATION OF LAW
OR OTHERWISE, CONTAINED IN OR DERIVED FROM THIS AGREEMENT, ANY OF THE
SCHEDULES ATTACHED HERETO, ANY OTHER DOCUMENTS REFERENCED HEREIN, OR IN
ANY OTHER MATERIALS, PRESENTATIONS OR OTHER DOCUMENTS OR COMMUNICATIONS
WHETHER ORAL OR WRITTEN, INCLUDING WITHOUT LIMITATION IMPLIED WARRANTIES
OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
8.3 FORCE MAJEURE. Each party will be excused from performance under this
Agreement, except for any payment obligations, for any period and to the
extent that it is prevented from performing, in whole or in part, as a
result of delays caused by the other party or any act of God, war, civil
disturbance, court order, labor dispute, third party nonperformance, or
other cause beyond its reasonable control, including failures,
fluctuations or nonavailability of electrical power, heat, light, air
conditioning, or telecommunications equipment. Such nonperformance will
not be a default or a ground for termination as long as reasonable means
are taken to expeditiously remedy the problem causing such nonperformance.
8.4 CROSS INDEMNITY. EDS and Customer each will indemnify, defend, and hold
harmless the other from any and all claims, actions, damages, liabilities,
costs, and expenses, including without limitation reasonable attorney's
fees and expenses, arising out of (a) the death or bodily injury of any
agent, employee, customer, or business invitee of the indemnitor, and (b)
the damage, loss, or destruction of any property of the indemnitor.
10
<PAGE>
8.5 RELIANCE ON INSTRUCTIONS. EDS is entitled to rely upon and act in
accordance with any instructions, guidelines or information provided to
EDS by Customer, which are given by persons having actual or apparent
authority to provide such instructions, guidelines, or information, and
will incur no liability in doing so. Customer will indemnify, defend, and
hold harmless EDS from any and all claims, actions, damages, liabilities,
costs, and expenses, including without limitation reasonable attorneys'
fees and expenses, arising out of or resulting from EDS acting in
accordance with this Agreement.
ARTICLE IX - MISCELLANEOUS
9.1 BINDING NATURE AND ASSIGNMENT. This Agreement will be binding on the
parties and their respective successors and assigns. Neither party may
assign this Agreement unless it obtains the prior written consent of the
other party (except that EDS will have the right to perform the Services
itself and through various of its indirect, wholly-owned, United
States-based subsidiaries and to subcontract to unaffiliated third parties
portions of the Services, so long as EDS remains responsible for the
obligations performed by any of its subsidiaries and subcontractors to the
same extent as if such obligations were performed by EDS employees), which
consent will not be unreasonably withheld. The following transactions
relating to either party will not require approval of the other party
under this Section: any merger (including without limitation a
reincorporation merger), consolidation, reorganization, stock exchange,
sale of stock or substantially all of the assets, or other similar or
related transaction in which such party is the surviving entity or, if
such party is not the surviving entity, the surviving entity continues to
conduct the business conducted by such party prior to consummation of the
transaction.
9.2 HIRING OF EMPLOYEES. During the term of this Agreement and for a period of
twelve months thereafter, neither party will, without the prior written
consent of the other, offer employment to or employ any person employed
then or within the preceding twelve months by the other party, if the
person was involved in providing or receiving Services.
9.3 NOTICES. Any notice under this Agreement will be deemed to be given when
(i) delivered by hand or when mailed by registered United States mail,
return receipt requested, and (ii) addressed to the recipient party at its
address set forth in the first paragraph of this Agreement and to the
attention of its President, in the case of Customer, or to the attention
of President of Community Banking Services, in the case of EDS. Either
party may from time to time change its address for notification purposes,
by giving the other prior written notice of the new address and the date
upon which it will become effective.
9.4 RELATIONSHIP OF PARTIES. EDS, in providing Services, is acting as an
independent contractor and does not undertake by this Agreement or
otherwise to perform any regulatory or contractual obligation of the
Customer. EDS has the sole right and obligation to supervise, manage,
contract, direct, procure, perform, or cause to be performed all work to
be performed by EDS under this Agreement.
9.5 MODIFICATION. EDS may from time to time modify any of the provisions of
this Agreement to be effective at any time on or after the expiration of
the Initial Term by giving Customer at least six months prior written
notice describing the modification and the date upon which it will be
effective (the "Modification Date"). If EDS gives Customer notice of a
modification pursuant to this Section, Customer may, by giving EDS written
notice at least three months prior to the Modification Date, terminate
this Agreement as of such Modification Date or at a specified later date.
Unless Customer provides such notice, the modification will be effective
for any period after the Modification Date.
9.6 WAIVER. A waiver by either of the parties of any of the covenants,
conditions, or agreements to be performed by the other or any breach
thereof will not be construed to be a waiver of any succeeding breach or
of any other covenant, condition, or agreement contained in this
Agreement.
11
<PAGE>
9.7 MEDIA RELEASES. All media releases, public announcements, and public
disclosures by Customer or Customer's employees or agents relating to this
Agreement or the subject matter of this Agreement, including without
limitation promotional or marketing material, but excluding any
announcement intended solely for internal distribution by Customer or any
disclosure required by legal, accounting, or regulatory requirements
beyond the reasonable control of Customer, will be coordinated with and
approved by EDS prior to release.
9.8 ENTIRE AGREEMENT. This Agreement and all attached Schedules constitute the
entire agreement between EDS and Customer with respect to the subject
matter of this Agreement. There are no understandings or agreements
relative to this Agreement which are not fully expressed herein and no
change, waiver, or discharge of this Agreement will be valid unless in
writing and executed by the party against whom such change, waiver, or
discharge is sought to be enforced. This Agreement may be amended only by
an amendment in writing, signed by the parties.
9.9 GOVERNING LAW. This Agreement will be governed by and construed in
accordance with the laws of the State of Texas.
9.10 EXECUTION OF AGREEMENT. Three original copies of this Agreement will be
executed and submitted to EDS by Customer. This Agreement will become
effective when EDS executes this Agreement. EDS will return one of the
executed copies to Customer. By executing this Agreement, Customer
represents and warrants that (a) this Agreement has been duly authorized;
(b) such execution does not, and will not, cause a breach by Customer of
any other contract, agreement, or understanding to which Customer is a
party; and (c) this Agreement constitutes a valid, fully enforceable, and
legally binding obligation of Customer. Customer will maintain this
Agreement as an official record of Customer continuously from the time of
its execution.
IN WITNESS WHEREOF, EDS and Customer each have caused this Agreement
to be signed and delivered by its duly authorized representative.
Customer: Accepted by:
FIDELITY FEDERAL BANK ELECTRONIC DATA SYSTEMS CORPORATION
By: /S/ JAMES E. STUTZ By: /S/ PAUL W. DUCKHAM
- ------------------------------------- -------------------------------------
Authorized Signature Authorized Signature
JAMES E. STUTZ, PAUL W. DUCKHAM,
President and Chief Operating Officer President, MISER Division
- ------------------------------------- -------------------------------------
Type or Print Name and Title Type or Print Name and Title
December 3, 1999 December 9, 1999
- ------------------------------------- -------------------------------------
Date Date
12
<PAGE>
EDS INFORMATION SERVICES L.L.C.
By: /S/ RAYMOND R. MATURI
-------------------------------------
Authorized Signature
RAYMOND R. MATURI.
Division President
-------------------------------------
Type or Print Name and Title
December 15, 1999
-------------------------------------
Date
13
<PAGE>
SCHEDULE A
BASIC SERVICES
EDS will provide Customer the following Basic Services:
I. DATA PROCESSING SOFTWARE SYSTEM ACCESS:
MISER Base Software System includes:
* Demand Deposit Accounts * Relationship Pricing
* Savings/Club Accounts * Combined Statements
* Retirement Accounts * Sweep Accounts
* Mortgage Loans (Investor) * NOW Accounts
* Mortgage Loans (Non-Investor) * ACH Returns
* Money Market Accounts * Automatic Account Transfers
* Line of Credit * Combined Interest Checks
* Student Loans * Mid Year IRA Statements
* General Ledger * Escrow Analysis
* Certificates of Deposit * Escrow Statements
* Lease Security * LIP Billing
* ACH/Transfers * Home Equity Loans
* Installment Loans * Coupon Production
* Passbook Loans * Credit Bureau Reporting (Max 2)
* Other Loans (Share) * General Ledger Auto-Posting
* IOLTA (Lawyer) * AM/PM Processing
* Relationship CIF * Documentation
* Disaster Recovery (Host) * Training Bank File
* Optical Disk Download * Employee Account Security
* Output Management System * Tape Generation
* Overdraft Protection
MISER Base Software System also includes the following ancillary
applications (Note: Access Fees and Volume Charges as defined in Schedule
B or Schedule C may apply):
* Commercial Loans * Investor Reporting
* Dealer Processing * Per Diem
* ECHO (Shadow Accounting) * Billing Records
* Safe Deposit Box * Notepad Storage
* Online ATM Processing * Report Writer Access
* Data Mart * Data Warehouse
* Accounts Payable
A-1
<PAGE>
II. STANDARD REPORTS:
EDS shall make available to Customer those standard reports listed in the
Data Center's published MISER Reports that are produced by those Data
Processing Software System application systems used by Customer. All
reports will be transmitted to a remote print facility at Customer's
location, unless otherwise requested by Customer. Customer is responsible
for the operation and cost of the remote print facility. Any expense for
additional copies, custom pre-printed forms, mailing and handling service
shall be paid by Customer. The design and format of any forms to be used
with the Data Processing Software System shall be approved by EDS. All
reports produced only upon request of Customer as well as special requests
to produce standard reports outside such report's normal production
frequency (which reports are denoted as "Requested Programs and
Frequencies") shall be subject to the Special Report Charges specified in
Schedule "C."
III. Hours of Operation and Schedule of Services
1. ON-LINE PROCESSING HOURS OF OPERATION
SCHEDULED AVAILABILITY
Monday through Friday 6:45 A.M. - 8:00 P.M. (See Note 1)
Saturday 8:00 A.M. - 2:00 P.M.
Sunday 8:00 A.M. - 2:00 P.M.
Note 1: Five (5) day processing with Saturday carry-over
EDS' Data Center will observe New Year's Day, President's Day, Memorial
Day, Independence Day, Labor Day, Veterans Day, Thanksgiving, and
Christmas as holidays. On-line service will not be available to Customer
on those days, except as mutually agreed upon in advance and for a fee to
be agreed upon in advance.
2. OFF-LINE PROCESSING AND REPORTING
2.1 DAILY
Regular daily reports and OMS 8:00 A.M. Following business day
o Includes all scheduled reports
and downloads for the core
applications (deposits, loans,
and general ledger)
2.2 MONTHLY
Interest checks and commercial Noon on the 1st business
checking account statements day following end of month
All other monthly reports Noon on the 3rd business
day following end of month
2.3 QUARTERLY
All other quarterly reports Noon on the 3rd business
day following end of quarter
2.4 ANNUAL
All IRS-required forms Scheduled as mutually agreed
to permit federal regulatory
compliance
All other annual reports Noon on the 4th business day
following end of year
3. BATCH TRANSACTION INPUT FROM CUSTOMER
3.1 Daily No later than 4:00 p.m. same
day
A-2
<PAGE>
SCHEDULE B
OPTIONAL SERVICES
Customer will have the option to implement the following option products
throughout the term of this Agreement. Should Customer elect to utilize any of
the optional products EDS will assess the surcharge identified below.
<TABLE>
<CAPTION>
COMPONENT MONTHLY ONE-TIME COMMENT
- ------------------------------------ ------------- -------------- --------------------------------
<S> <C> <C> <C>
LOAN SUPPORT
- ------------
MORTGAGE LOANS Access Fee $ 8,000.00 One-Time Fee for
Included In On-Site Training
Basic Service
COMMERCIAL LOANS $ 200.00 $ 3,000.00 One-Time Fee for
On-Site Training
COMMERCIAL LOAN WITH $ 300.00 $ 5,000.00 One-Time Fee for
MULTIPLE PARTICIPATION On-SiteTraining
COMMERCIAL CONSTRUCTION LOANS $ 2,500.00 $ 3,000.00 One-Time Fee for
On-Site Training
INVESTOR REPORTING $ 750.00 $ 4,000.00 One-Time Fee for
On-Site Training
BILLING RECORDS & PER DIEM Access Fee $ 2,500.00 One-Time Fee for
Included In On-Site Training
Basic Service
DEALER LOAN SERVICING Access Fee $ 2,000.00 One-Time Fee for
Included In On-Site Training
Basic Service
ECHO (SHADOW ACCOUNTING) Access Fee $ 2,000.00 One-Time Fee for
Included In On-Site Training
Basic Service
ONLINE COLLECTIONS $300.00 $ 2,500.00 One-Time Fee for
On-Site Training
LETTER WRITER $ 50.00 $ 1,500.00 Plus .025 per letter generated
and .10 per letter Stored Billed
Monthly; One-time Fee for
On-Site Training
NOTEPAD STORAGE Access Fee Not Applicable Plus $0.01 Per NotePad Record
Included In
Basic Service
FINANCIAL APPLICATIONS
- ----------------------
ASSET/LIABILITY MANAGEMENT
> License Fee (Multi-User Version) Not Applicable $ 27,700.00 HNC Financial Solutions
> Installation/Training Fee Not Applicable $ 5,000.00
> Maintenance Fee $ 475.00 Not Applicable Plus File Transfer Fee
INVESTMENT MANAGEMENT
> License Fee (Multi-User Version) Not Applicable $ 12,500.00 Wall Street Consulting Group
> Installation/Training Fee Not Applicable $ 7,000.00
> Maintenance Fee $ 225.00 Not Applicable Plus File Transfer Fee
FIXED ASSETS
> License Fee (Multi-User Version) Not Applicable $ 3,650.00 HNC Financial Solutions
> Installation/Training Fee Not Applicable $ 2,000.00
> Maintenance Fee $ 75.00 Not Applicable Plus File Transfer Fee
</TABLE>
B-1
<PAGE>
SCHEDULE C
SERVICE CHARGES
Section 1.a. Charges for Basic Services.
- ------------ ---------------------------
In consideration for the services described in Schedule A, Customer will pay EDS
a monthly data processing service charge based on the following table.
<TABLE>
<CAPTION>
COMPONENT MONTHLY ONE-TIME COMMENT
- ------------------------------------ ------------- -------------- --------------------------------
<S> <C> <C> <C>
CORE PROCESSING FEES
- --------------------
ACCOUNT PROCESSING FEE
STANDARD:
Open Active Accounts * $ 0.50 Not Applicable Per Account Per Month
PREMIUM - COMMERCIAL LOANS &
INVESTOR MORTGAGES:
Open Active Accounts * $ 0.50 Not Applicable Per Account Per Month
STANDARD & PREMIUM:
Closed Accounts * $ 0.05 Not Applicable Per Account Per Month
* FOR THE PURPOSES OF THIS SCHEDULE ACCOUNT(S) SHALL BE DEFINED AS THE TOTAL
DEPOSITS, TOTAL LOANS, AND COLLECTIONS RECORDS PROCESSED BY EDS FOR THE
CUSTOMER AS REPORTED IN EDS MSR615 PROGRAM (DATA CENTER WORKSHEET FOR
ACCOUNT VOLUME ANALYSIS.)
* DURING THE FIRST TWENTY-FOUR (24) MONTHS OF THE TERM OF THIS AGREEMENT, EDS
WILL WAIVE ACCOUNT PROCESSING FEES FOR UP TO THE FIRST 15,000 MORTGAGE LOAN
ACCOUNTS.
ACCOUNTS PAYABLE
----------------
> Monthly Fee $ 300.00 $ 2,000.00 One-Time Fee for On-Site Training
> Vendor Fee $ 0.35 Not Applicable Per Vendor Billed Monthly not
to exceed $1,200.00
> Transaction Fee $ 0.02 Not Applicable Per Transaction Billed Monthly
SAFE DEPOSIT BOX Access Fee $ 1,500.00 EDS hereby agrees to waive the $500.00
Included In MISER Safe Deposit Box Monthly Access Fee
Basic Service and $20.00 (per branch) Monthly Branch
Access Fee; One-Time Fee for On-Site Training
ONLINE ATM $ 1,000.00 Included One-Time Fee for On-Site Training
included in Charge for Basic Conversion
Services, Schedule C, Section 2.a
ADHOC REPORTING
- ---------------
MISER GUI REPORT WRITER & DATA EXTRACT
Application Access Waived $ 5,000.00 EDS hereby agrees to waive the $750.00
MISER Report Writer and Data Extract Monthly
Access Fee; One-Time Fee for On-Site Training
C-1
<PAGE>
VARIABLE CHARGES:
> URSA Waived $ 1,000.00 Per URSA Client Terminal
> prime pass accounts accessed $ 0.0030 Not Applicable Billed Monthly
> prime pass accounts processed $ 0.0041 Not Applicable Billed Monthly
> off-prime pass accounts accessed $ 0.0010 Not Applicable Billed Monthly
> off-prime pass accounts processed $ 0.0025 Not Applicable Billed Monthly
MISCELLANEOUS FEES
- ------------------
DOCUMENTATION:
Hard Copy No Charge No Charge Initial Hard Copy Set; Additional Sets $250.00
CD-ROM No Charge No Charge Initial CD-ROM; Additional CD's $50.00
FILE TRANSFER:
External File Reporting
(Magnetic Tape) $ 40.00 Not Applicable Fee Waived for the first 10 Files on a Monthly
Basis; Per File Plus Tape Cost
External File Reporting
(Transmissions and Downloads) $ 30.00 Not Applicable Fee Waived for the first 10 Files on a Monthly
Basis; Per File
SCHEDULE CHANGES:
Ad Hoc
(Processed by EDS Production Control) $ 25.00 Not Applicable Per Change WAIVED DURING FIRST 6 MONTHS OF THE
TERM OF THIS AGREEMENT
Permanent
(Processed by EDS Production Control) $ 15.00 Not Applicable Per change WAIVED DURING FIRST 6 MONTHS OF THE
TERM OF THIS AGREEMENT
CARD OPTION CHANGES:
Ad Hoc
(Processed by EDS Production Control) $ 25.00 Not Applicable Per Change WAIVED DURING FIRST 6 MONTHS OF THE
TERM OF THIS AGREEMENT
Permanent
(Processed by EDS Production Control) $ 25.00 Not Applicable Per change WAIVED DURING FIRST 6 MONTHS OF THE
TERM OF THIS AGREEMENT
PARAMETER CHANGES:
Field Changes
(Processed by EDS Production Control) $ 15.00 Not Applicable Per Field Per Setup/Change WAIVED DURING FIRST 6
MONTHS OF THE TERM OF THIS AGREEMENT
Account/Service Charge Types
(Processed by EDS Production Control) $ 75.00 Not Applicable Per Type Per Setup/Change WAIVED DURING FIRST 6
MONTHS OF THE TERM OF THIS AGREEMENT
</TABLE>
C-2
<PAGE>
EDS contemplates offering Customer its MISER DATAMART Application, said
application to be released to EDS' service bureau customers in the first quarter
of 2000.
<TABLE>
<CAPTION>
COMPONENT MONTHLY ONE-TIME COMMENT
- ------------------------------------ ------------- -------------- --------------------------------
<S> <C> <C> <C>
DATA MART & DATA WAREHOUSE
- --------------------------
> Data Mart Initial License Fee Not Applicable Waived(1) Includes:
New Name Business Discount Data Replication
Net Data Mart Initial License Fee > Daily, once a day, on a NT-Server at the SMC
[dedicated server]
> Data Mart Server Package Not Applicable $ 95,000.00 Reporting Products
New Name Business Discount $ 41,000.00(2) > MISER Datamart Report Client Version 1.0 -
Net Data Mart Server Package ------------ Crystal Reports
$ 54,000.00 > MISER Executive Reporting Module Version 1.0 - Sagent
============ (single source, single target - 20 user licenses)
> Monthly Usage Fee
Includes: Data Replication daily Monthly Fee estimate assumes 200,000 accounts
on a NT-Server at EDS' Data Center $ 5,000.00 Not Applicable (as defined in Schedule C, Section 1a of this
plus maintenance and server Agreement) at $0.025 per account.
administration.
> Installation and Training Not Applicable $ 6,500.00 Four (4) Days On-Site
> Report Product Training Not Applicable $ 1,200.00 PER MAN-DAY
> Consulting Services Not Applicable $ 2,500.00 PER MAN-DAY
> Re-Clone Database (Client Requeted) Not Applicable $ 0.02 Per record; Minimum $2,000.00
</TABLE>
C-3
<PAGE>
> Other Considerations:
> (1) In consideration of Customer licensing a minimum 400 seats of the SDI
ZEUS Teller and Platform System EDS hereby agrees to waive the $40,000.00
Data Mart Initial License Fee. Should Customer elect to license fewer SDI
ZEUS Teller and Platform Systems then EDS reserves the right to reinstate a
portion of the Data Mart Initial License Fee.
> (2) In consideration of Customer licensing a minimum 400 seats of the SDI
ZEUS Teller and Platform System EDS hereby agrees to provides a discount of
$31,000.00 against the purchase of a Data Mart Server Package for
$95,000.00. Should Customer elect to license fewer SDI ZEUS Teller and
Platform Systems then EDS reserves the right to reduce the discount against
the Data Mart Server Package.
> Monthly fees will fluctuate based on number of accounts; the variable
portion of the monthly fee is $0.025 per account.
> Additional installation and consulting services available at $ 2,500.00 per
man-day.
> It may be necessary to upgrade the server as technology changes. In the
event EDS determines that a server upgrade is warranted, EDS and Customer
will mutually agree as to the necessity of the upgrade and Customer will
pay a mutually agreeable server upgrade fee.
> Hardware and Software Requirements:
Software: NT 4.0, SQL Server 7.0 (for Datamart) ; Crystal
Reports 6.0 (for Datamart Report Client only)
Hardware: Recommended configuration: Dual Intel 450MHZ Pentium II
Processors, 512MB ECC SDRAM SIMM, 54GB* 10000RPM Ultra/Wide
Disk Configured as RAID5 hardware array, 4 mm DAT Drive,
10/100 TX LAN Controller, SCSI Ultra/Wide Controller capable
for RAID5.
* May vary based on storage needs.
> Pricing in this Schedule B is subject to further review by EDS of the
specific configuration for Customer and may be subject to modification.
Section 1.b. Annual Minimum Charges for Basic Services.
- ------------ ------------------------------------------
EDS' Basic Services are subject to the annual minimum charges in the table in
this Section 1.b during the term of this Agreement. All monthly fees referenced
in Schedule B and Schedule C of this Agreement are to be included in the
calculation of Annual Minimum Charges for Basic Services.
COMPONENT FEES AMOUNT
-------------- ------
ANNUAL MINIMUM BASIC SERVICE CHARGES
Year 1-5 of the term of this Agreement $1,000,080.00
On each anniversary of the Operational Date, EDS will calculate the total
monthly charges referenced in Schedule B and Schedule C of this Agreement paid
to EDS by Customer for the immediately preceding 12 months (the "Total
Charges"). In the event the Total Charges for the previous 12 months is less
than the Annual Minimum Charges set forth in the table above in this Section
1.b, EDS will invoice Customer the difference between the Annual Minimum Charges
and the Total Charges, such invoice to be paid by Customer within 10 days of the
date of invoice. Notwithstanding anything to the contrary in this Agreement, the
parties agree that the Annual Minimum Charges set forth in the table above in
this Section 1.b will not be subject to the annual adjustment described in
Schedule E.
C-4
<PAGE>
Section 1.c. Staffing
- --------------------------
RELATIONSHIP MANAGER. EDS shall assign a relationship manager to Customer (the
"Relationship Manager"). The Relationship Manager will be located at a regional
EDS facility and will be responsible for management of EDS' and the Customer's
overall business relationship. The Relationship Manager will meet with the
Customer at least monthly to discuss issues related to the business
relationship. EDS will provide the Relationship Manager at no additional charge
to the Customer.
PROGRAMMER. Effective the Operational Date, EDS shall use commercially
reasonable efforts to hire and assign a full-time EDS programmer dedicated to
Customer's account (the "Programmer"). The Programmer will be located at
Customer's site for the term of this Agreement. The Programmer will provide on a
full-time basis the Special Programming Services contemplated in Section 1.d of
this Schedule C. Should EDS be unable to assign a Programmer by the Operational
Date as contemplated above, then Customer may, at its option, select from one of
the following alternatives for each month in which a Programmer is not assigned
by EDS: (i) receive up to one hundred hours of Special Programming Services
performed by off-site, non-dedicated EDS programmers, or (ii) receive a credit
for such month in the amount of $3,000.00. The immediately preceding
alternatives will be pro-rated for partial months. Should Customer select option
(i), above, EDS shall have the right to select the programmer(s) to perform the
Special Programming Services.
Section 1.d. Special Programming Services
- ----------------------------------------------
EDS shall provide to Customer special programming services (including
development of special programs and interfaces, modification of existing
programs, conversion services, and retrofitting of custom programs and patches
in to System releases) ("Special Programming Services") to the extent that they
can be provided by the Programmer referenced in Section 1.c above working on a
full-time basis. Special Programming Services deliverables shall be scheduled as
mutually agreed by EDS and Customer, provided that EDS will exercise
commercially reasonably efforts to provide acceptable turnaround time on
projects requested by the Customer. Time spent by EDS' programmers to (i)
correct defects to the EDS System (a "defect" shall mean the EDS System does not
perform in accordance to specifications as generally provided to EDS' customer
base) and (ii) perform modifications required by Federal regulatory agencies,
subject to the provisions of Section 3.4 of the Agreement, will not be applied
against the Special Programming Services hours that may be provided by EDS with
off-site EDS programming resources in the event Customer exercises alternative
(i) set forth in Section 1.c above.
CHARGES FOR SPECIAL SERVICES. Should Customer desire programming services in
excess of those contemplated in the Special Programming Services then EDS shall
provide to Customer a cost and time estimate to complete the desired capability.
Such Additional Services shall be billed at a rate of $125.00 per hour. EDS will
proceed with the Customer's request for such Additional Services upon receipt of
Customer's written approval of EDS' time and cost estimate.
EDS reserves the right to decline Customer requests for Special Programming or
Additional Services if the deliverable would adversely affect the System or if
EDS resources are not reasonably available to accomplish the request.
C-5
<PAGE>
Section 1.e. Deconversion Services
- ---------------------------------------
As set forth in Section 7.6 of the Agreement, Customer will pay EDS all costs
reasonably incurred by EDS in connection with such deconversion assistance and
resources utilized to prepare any test or deconversion tapes. Without limiting
the provisions of Section 7.6 of the Agreement, all deconversion assistance will
be provided at EDS' then standard charges; provided, however, that the following
deconversion assistance items shall be fixed at the rates listed below in this
Section 1.f, subject only to the annual price adjustments set forth in Schedule
E of this Agreement.
o Deconversion Tapes $ 500.00 per tape
(same pricing for test tapes
or final tapes)
o Employee Research Time $ 100.00 per hour
o Master File Layouts
Included with tape charge but can
charge excessive man hours @ $ 125.00 per hour
o Telecom Charge (rebill pass through actual
charge plus 5% handling charge)
o Partial Month On-line Charges
(Average monthly invoice divided by number of days used). Example:
$42,000.00 average customer invoice divided by 21 days = $2,000.00
per day. Customer uses 10 days. $2,000.00 x 10 = $20,000.00. Charges
will vary depending on average monthly invoice, number of billing
days in monthly cycle, days used after conversion.
Section 1.f. Disaster Recovery Fees
- ----------------------------------------
In the event of an actual disaster, Customer shall pay Disaster Recovery fees
and actual costs EDS incurs, including, but not limited to: travel and
travel-related expenses of EDS' staff; telephone expenses; data communications
expenses; other than out of pocket expenses related to EDS' operations other
than Data Processing; cost of any special equipment required by Customer in
addition to the equipment configuration at EDS' disaster recovery hot site.
a. While EDS is responsible for the cost of testing EDS' Data Center
operations at the disaster recovery hotsite, Customer is responsible for
any incremental testing fees incurred as result of Customer's testing
requirements. Customer will not be financially responsible for EDS'
internal Data Center disaster recovery testing conducted on an annual
basis.
Section 1.g History Retention
- -----------------------------------
The fees set forth herein are based upon the closed account, monetary and
non-monetary transaction history retention limits set forth below. Additional
history retention requested by Customer may be subject to additional charge at
EDS' discretion.
Checking 3 months (rolling)
Consumer Loans current and previous year
General Ledger current and previous year
Savings current and previous 2 years
Other applications current and previous year
Additional history retention will be available on request by Customer for an
additional fee.
Section 1.h. Optional PC Based Applications
- ------------------------------------------------
Customer intends to use the personal computer based applications listed below
(the "PC Applications"). Customer agrees to enter into separate software license
and software maintenance agreements with EDS or EDS' designated third party
vendors in order to obtain the rights to use the below listed PC Applications.
C-6
<PAGE>
o SDI ZEUS Client/Server Front-End with TCP/IP Connection To EDS' Host
Computer
Section 2.a Charge For Basic Conversion Services
- ------------------------------------------------------
Customer will pay EDS for the following one-time charges associated with
conversion and training services performed during the Conversion period.
CONVERSION SERVICES ONE-TIME COMMENT
- ------------------------------------ -------------- --------------------------
MISER SYSTEM SETUP, IMPLEMENTATION,
& CONVERSION:
Institution Setup $ 75,000.00 Plus travel and living
expenses for EDS' employee
while on Customer site.
Conversion $ 200,000.00 Plus travel and living
expenses for EDS' employee
while on Customer site.
MISER SYSTEM TRAINING FEES:
MISER Introduction $ 63,000.00 Plus travel and living
expenses for EDS' employee
while on Customer site.
The MISER System Training Fees set forth in the table above will be in payment
of EDS' provision to specified Customer personnel of the following training
classes:
Class Number of Classes
-------------------------------------------------------------
Introduction to MISER 1
Relationship CIF 3
Branch Operations 3
Deposit Servicing 3
Security 1
Individual Retirement Account Servicing 1
Consumer Loans 1
Line of Credit Account Servicing 1
General Ledger 1
Back Office (ACH/Inclearings/Transfers) 1
Command and Edit (CANDE) System 1
TB Entry 1
Backoffice Branch Operations 1
Nightly Production 1
MISER Administrator 1
ATM 1
The Conversion Services, as defined in Article III, Section 3.1(c) of the
Agreement, are based upon EDS' good faith estimate derived from information
presented to EDS by Customer. If, during the course of the Conversion Services
effort, it is determined that (a) Customer desires EDS to perform additional
services not included in Company's Conversion Services described herein, or (b)
the Conversion Services assistance effort is substantially greater than
Company's good faith estimate, then EDS reserves the right to charge Customer
additional Conversion Service Charges as mutually agreed by EDS and Customer.
C-7
<PAGE>
Section 2.b Charge for Custom Interface and Development Conversion Services
- --------------------------------------------------------------------------------
If it is determined that Customer desires EDS to perform custom interface and
other development services not contemplated in the Basic Conversion Services
then EDS will charge Customer for such services at a rate of $125.00 per-hour
per resource. Notwithstanding the foregoing, EDS will waive such fees for Custom
Interface and Development Services for up to the first one hundred (100)
man-hours.
C-8
<PAGE>
Section 3. Schedule of One-Time Charges.
- -----------------------------------------------
Basic Services Charges (as defined in Exhibit C, Sections 1.a, 1.b, and 1.c)
o All charges will be payable on receipt of EDS' invoice.
Special Programming Services (as defined in Exhibit C, Section 1.d)
o All charges will be payable on receipt of EDS' invoice.
Deconversion, Disaster Recovery, and History Retention (as defined in Exhibit C,
Sections 1.e, 1.f and 1.g)
o All charges will be payable on receipt of EDS' invoice.
Conversion Services (as defined in Exhibit C, Section 2a)
o $100,000.00 Upon execution of this Agreement
o $150,000.00 Upon January 1, 2000
o $ 88,000.00 Upon Conversion
Additional Charges (Including all remaining charges plus travel and living
related expenses)
o All charges will be payable on receipt of EDS' invoice.
C-9
<PAGE>
SCHEDULE D
CUSTOMER SYSTEMS
SYSTEM VENDOR
------ ------
EDS will provide customer a detailed quote of the cost to create and run an
interface to the Customer System listed above.
D-1
<PAGE>
SCHEDULE E
ANNUAL ADJUSTMENT TO CHARGES
1. ADJUSTMENT TO CHARGES. The parties acknowledge and agree to use the
Employment Cost Index for Total Compensation (not seasonally adjusted),
Private Industry Workers, White-collar occupations excluding sales,
June 1989 = 100 (the "ECI"), as the basis for annual adjustments to all
charges to be paid by Customer to EDS under the Agreement (the
"Adjustable Charges"). The ECI is published by the Bureau of Labor
Statistics (the "BLS") of the U.S. Department of Labor. For purposes of
this Schedule E, the most recently published ECI as of any anniversary
of the Effective Date is the "ECI Current Index", and the "ECI Base
Index" is the ECI Current Index from the prior anniversary of the
Effective Date (or, for the first anniversary, the ECI most recently
published as of the Effective Date). If, on any anniversary of the
Effective Date, the ECI Current Index is higher than the ECI Base
Index, then, effective as of such anniversary, an adjustment to the
Adjustable Charges will be made by increasing the Adjustable Charges by
the percentage that the ECI Current Index increased from the ECI Base
Index. In calculating the percentage increase, the parties agree to
round to one decimal place. In no event will adjustments pursuant to
this Exhibit A exceed five percent (5%) on an annual basis during the
term of the Agreement. If, on any anniversary of the Effective Date,
the ECI Current Index is lower than the ECI Base Index, no adjustment
to the Adjustable Charges will be made, and the ECI Base Index shall be
carried over to the next anniversary so that no adjustment to the
Adjustable Charges will be made on the next anniversary except to the
extent that the ECI Current Index on that next anniversary exceeds the
carried over ECI Base Index.. If the period from the ECI Base Index to
the ECI Current Index is other than 12 months, an adjustment to a full
year will be made in the manner indicated in the example set forth in
Section 3 of this Schedule E. If an adjustment is not made on an
anniversary date for any reason, then the ECI Base Index for the
following anniversary date will be the same as the ECI Base Index for
the anniversary date on which no adjustment was made, as indicated in
the note to the third example set forth in Section 3 of this Schedule
E. The ECI is published quarterly at the end of the month following the
quarter measured, and the most recently published ECI as of the
Effective Date was the ECI published on or around October 31, 1999 for
the quarter ending September 30, 1999. The parties acknowledge and
agree that EDS will adjust the Adjustable Charges and will advise
Customer of such adjustment in writing so that the new charges will
amend this Agreement and become effective on the applicable anniversary
of the Effective Date. If no adjustment is made on an anniversary date
for any reason, EDS will advise Customer in writing of such fact.
2. ADJUSTMENT TO CHARGES EXAMPLE. The following is an example of the
adjustments described in Section 1 of this Schedule E. The specific
numbers used in the example are for illustration purposes only and are
not necessarily reflective of an actual calculation hereunder or the
actual ECI.
Annual Adjustment on First Anniversary Date:
Example Charge under this Agreement $1,500.00
ECI Current Index 136.0
ECI Base Index (as of Effective Date) 129.9
Percentage Change 36.0 - 129.9) / 129.9 = 4.7%
Charge Increased by (1+ Percentage Change) $1,500.00 * (1 + 4.7%)
Equals Adjusted Charge $1,570.50
E-1
<PAGE>
Annual Adjustment on Second Anniversary Date:
Adjusted Charge as of First Anniversary Date $1,570.50
ECI Current Index 143.2
ECI Base Index (as of First Anniversary Date) 136.0
Percentage Change (143.2 - 136.0) / 136.0 = 5.3%
Charge Increased by
(1+ Maximum Annual Percentage Change) $1,570.50 * (1 + 5.0%)
Equals Adjusted Charge $1,649.03
Annual Adjustment on Third Anniversary Date:
Adjusted Charge as of Second Anniversary Date $1,649.03
ECI Current Index 140.9
ECI Base Index (as of Second Anniversary Date) 143.2
Percentage Change No adjustment is made
Charge Increased by (1+ Percentage Change) $1,649.03 * (1 + 0.0%)
Equals Adjusted Charge* $1,649.03
Annual Adjustment on Fourth Anniversary Date:
Adjusted Charge as of Third Anniversary Date $1,649.03
ECI Current Index 145.9
ECI Base Index (as of Third Anniversary Date) 143.2
Percentage Change (145.9 - 143.2) / 143.2 = 1.9%
Charge Increased by (1+ Percentage Change) $1,649.03 * (1 + 1.9%)
Equals Adjusted Charge* $1,680.12
* The ECI Base Index for the fourth anniversary date would be 143.2.
3. CHANGES TO INDEX. In the event that the BLS should stop publishing the
ECI or should substantially change the content, format or calculation
methodology of the ECI, the parties will substitute another comparable
measure published by a mutually agreeable source, except as noted
below. If the change is to redefine the base period for the ECI from
one period to some other period, the parties will continue to use the
index but will use the new base period figures for all future
adjustments. If the change is to the name of the ECI, the new name will
be used instead of the old name so long as the numbers previously
published for the index have not changed. If the change is to the
publication schedule, the parties may agree in writing to use a
different publication schedule and to adjust any partial year to a full
year, if needed. The adjustment to convert a partial year to a full
year is shown below.
ECI Current Index as of July 19XX 151.0
ECI Base Index as of June 19XX-1 145.2
Percentage Change
(rounded to 3 decimals) (151.0 - 145.2) / 145.2 = 3.994%
Percent Times 12 Divided
# of Months in Period 3.994% * 12 / 13
Equals Percentage Change (rounded to 1 decimal)* 3.7%
* This calculation method will be used instead of the Percentage
Change calculation shown in Section 2 of this Schedule E if the
period between the ECI Base Index and the ECI Current Index is
other than 12 months.
E-2
<PAGE>
SCHEDULE F
PERFORMANCE STANDARDS
1. PERFORMANCE STANDARDS: EDS agrees that the Services will be provided in
accordance with the following Performance Standards.
SUBSTANDARD CRITICAL
PERFORMANCE PERFORMANCE PERFORMANCE
STANDARD THRESHOLD THRESHOLD COMMENT
- ----------------- ----------- ------------ -----------------------------------
1.a MISER System <99% <98% Monthly on line availability
Monthly On-line measures the time the Hardware,
Availability Software and Network components
of the MISER System must be
available for Customer processing
during the time specified in
Schedule A, Section III,
Paragraph 1. This measurement
represents the time MISER is
actually useable as a ratio to
the time period it was expected
to be useable each calendar
month. It will be calculated in
minutes by subtracting from the
total time the service was
scheduled to be available during
a given month, the total time
the service was unavailable
during that same month and
dividing the result by the
scheduled availability as
specified in Schedule A, Section
III, On-line Hours of Operation.
1.b MISER System 2 Seconds 4 Seconds Measures, on a monthly basis,
On-line the time elapsed between the
Response Time receipt of a transaction request
at MISER's main operating router
and the receipt of the last
character in answer to that
request (a function of performance)
at FFB's main operating reouter.
It will be calculated in
milliseconds by subtracting from
the total time consumed by a given
transaction the total time
allocated to that transaction, and
dividing by the scheduled response
time.
1.c MISER System 98.5% 96% Reports and Output Files must be
Reporting and made available to FFB within the
Output File agreed upon daily, weekly, monthly,
Availability quarterly and annual delivery
schedules. Performance under this
standard shall be measured monthly
by dividing the number of scheduled
reports and output files not
received by FFB by the scheduled
time by the total number of
scheduled reports and output files
expected by FFB as specified in
Schedule A, Section III, Offline
Processing and Reporting.
2. PERFORMANCE STANDARD CREDIT: Customer understands and agrees that EDS
will not achieve the above mentioned performance standard goals one
hundred percent (100%) of the time, provided however, if EDS'
performance does not equal or exceed the Substandard Performance
Threshold defined above for a given month, then Customer shall be
entitled to a Performance Standard Credits as specified below:
F-1
<PAGE>
(a) If EDS fails to meet the Substandard Performance Threshold
specified for the MISER System On-line Availability, then
Customer shall be entitled to a credit on the Account
Processing Fees defined in Schedule C, Section 1.a for each
month in which said Substandard Performance Threshold is not
met based on the following table:
CREDIT ON THE
ACCOUNT PROCESSING
FEES FOR OPEN
AGGREGATE ONLINE AVAILABILITY ACTIVE ACCOUNTS
* If Aggregate Online Availability is less 1%
than 99% and greater than or equal to 98%
* If Aggregate Online Availability is less 3%
than 98% and greater than or equal to 97%
* If Aggregate Online Availability is less 5%
than 97%
Additionally, if EDS fails to achieve 97% Aggregate Online
Availability during two months in any twelve (12) month
period, Customer shall be entitled to a ten percent (10%)
credit, in lieu of the five percent (5%) defined above, on the
Account Processing Fees for Open Active Accounts defined in
Schedule C, Section 1.a for the second month.
(b) If EDS fails to meet Substandard Performance Threshold
specified for the MISER System On-line Response Time, then
Customer shall be entitled to a credit on the Account
Processing Fees defined in Schedule C, Section 1.a for each
month in which said Substandard Performance Threshold is not
met based on the following table:
ON-LINE SYSTEM RESPONSE TIME CREDIT ON THE ACCOUNT
PROCESSING FEES FOR
OPEN ACTIVE ACCOUNTS
* If Online System Response Time is more than 1%
2 seconds for 2% of the Total Monthly
Monetary Transactions
* If Online System Response Time is more than 3%
4 seconds for 2% of the Total Monthly
Monetary Transactions
* If Online System Response Time is more than 5%
8 seconds for 2% of the Total Monthly
Monetary Transactions
Additionally, if Online System Response Time is more than 4
seconds for 2% of the Total Monthly Monetary Transactions
during two months in any twelve (12) month period, Customer
shall be entitled to a ten percent (10%) credit, in lieu of
the five percent (5%) credit defined above, on Account
Processing Fees for Open Active Accounts defined in Schedule
C, Section 1.a for the second month in which EDS fails to
achieve the Online System Response Time Performance Standard.
F-2
<PAGE>
(c) If EDS fails to meet Substandard Performance Threshold
specified for MISER System Reporting and Output File
Availability, then Customer shall be entitled to a credit on
the Account Processing Fees defined in Schedule C, Section 1.a
for each subsequent month in which said Substandard
Performance Threshold is not met based on the following table:
ON-LINE SYSTEM RESPONSE TIME CREDIT
* If more than 2% of the Reports and Output Files 1%
are not available to Customer on time during a
given month
* If more than 3% of the Reports and Output Files 3%
are not available to Customer on time during
a given month
* If more than 5% of the Reports and Output Files 5%
are not available to Customer on time during a
given month
Additionally, if more than 5% of the Reports and Output Files
are not available to Customer on time during two months in any
twelve (12) month period, Customer shall be entitled to a ten
percent (10%) credit, in lieu of the five percent (5%) credit
defined above, on Account Processing Fees for Open Active
Accounts defined in Schedule C, Section 1.a for the second
month in which EDS fails to achieve the Reporting and Output
File Availability Performance Standard.
3. REPORTING: EDS agrees to provide to Customer, on a monthly basis, a report
indicating EDS' actual performance against the Performance Standards
identified in Schedule F, Sections 1.a, 1.c, and 1.d. Customer shall be
responsible for notifying EDS of its failure to perform against the
Performance Standards identified in Schedule F, Section 1.b. EDS reserves
the right to audit Customer Performance Standard analysis pertaining to
Schedule F, Section 1.b.
4. TERMINATION: In the event EDS fails to meet the Critical Performance
Threshold for the same Performance Standard for six (6) consecutive months,
then Customer may, by giving the defaulting party at least sixty (6) days
prior written notice thereof, terminate this Agreement as of a date
specified in such notice.
5. MISCELLANEOUS
5.1 Performance Standard Credits shall be paid to Customer in the form of
a of a credit against the amount payable by Customer to EDS under this
Agreement for the next ensuing month's invoice for services rendered
hereunder by EDS.
5.2 A single event of failure which causes EDS to fail to meet more than
one Performance Standard shall only reduce EDS' performance with
respect to one Performance Standard. EDS and Customer will agree as to
which Performance Standard will be affected by that single event.
Under no circumstance shall the aggregate credit hereunder exceed ten
percent (10%) of the total Account Processing Fees defined in Schedule
C, Section 1.a in a given month.
5.3 Measurement of EDS' actual performance under any Performance Standard
shall exclude time attributable to events of pre-scheduled downtime.
Pre-scheduled downtime shall include such things as regular preventive
maintenance, servicing of hardware, hardware upgrades, and software
upgrades. The times for pre-scheduled downtime shall be determined by
EDS in advance of the event, provided, however, that EDS will use
commercially reasonable efforts not to schedule any such pre-scheduled
downtime during normal business hours.
F-3
<PAGE>
5.4 Notwithstanding anything to the contrary herein, EDS will not be held
responsible for, and may exclude from the calculation of compliance
with the Performance Standards, any failure to meet Performance
Standards if, during, and to the extent that such failure is related
to or caused by (a) regularly pre-scheduled downtime as described in
Section 4.3 of this Schedule F, (b) any matter constituting force
majeure, as provided in Section 8.3 of the Agreement, (c) Customer's
or its third-party providers' failure to perform its obligations under
the Agreement where such failure was the proximate cause of such
failure, (d) special production jobs, testing procedures or other
services which are given priority at the request of Customer, (e) any
significant increase in processing volumes or significant change in
the manner in which Customer conducts its business (in each case,
during a reasonable transition period to be agreed upon by EDS and
Customer in good faith), or (f) failure of the data communications
carrier lines between Customer and the EDS' System.
5.5 Customer acknowledges and agrees that the Performance Standard Credit
provided for herein will be the sole and exclusive remedy available to
Customer for EDS' failure to meet Performance Standards and Customer
Shall not be entitled to any additional remedies.
5.6 Customer and EDS agree that the purpose of the Performance Standards
set forth herein are to induce EDS to achieve performance levels which
are satisfactory to Customer and consistent with Customer's
experience. In the event, however, that EDS does not meet the
Performance Standards listed above, then Customer and EDS agree to
review the actual performance and its impact on Customer. If, in the
reasonable judgement of the parties, there is not significant adverse
impact on Customer, and if the Performance Standard cannot be
reasonably attained on a regular basis, then Customer and EDS agree to
negotiate in good faith to arrive at a revised Performance Standard,
or to waive the applicable credit pertaining to the particular
Performance Standard. Further, EDS and Customer acknowledge that
changing requirements may from time to time require modification of
Performance Standards. Accordingly, EDS and Customer agree to review
Performance Standards from time to time (but in no event less than
annually) and shall negotiate in good faith to arrive at mutually
agreeable revisions to the Performance Standards.
5.7 Reports to be available by the daily report deadline are those
produced by the MISER System critical path jobs as of the time of
conversion. The critical path jobs include single executions of: NDFP,
LNFP, NLFP, DLYEXP, DLYPRT, MSR900A, GLEXP, GLPRT, SVD090, SVM201,
LNM259, LNM260, TFD091, LND200, and DATABASE DUMP. If Customer
requests additional reports to be produced from these programs, or
additional functions to be performed by these programs, the impact on
the delivery schedule and the Performance Standards will be by mutual
agreement of the parties.
F-4
<PAGE>
ADDENDUM 1
AMENDMENTS TO THE AGREEMENT FOR TECHNOLOGY SERVICES
WHEREAS, EDS, EIS (all references to EDS in this Addendum will be
deemed to include EIS) and Customer entered into the Agreement for Technology
Services ("Agreement") as of even date herewith.; and
WHEREAS, the Agreement provides that it cannot be changed without the
written agreement of EDS and Customer; and
WHEREAS, Customer has requested of EDS that EDS agree to certain
modifications to the Agreement as specified herein; and
WHEREAS, EDS is agreeable to the following indicated modifications to
the Agreement, for the consideration hereinafter indicated.
NOW THEREFORE, in and for the consideration hereinafter stated, and for
other good and valuable consideration, not herein recited but the sufficiency
and receipt of which are hereby acknowledged, EDS and Customer agree as follows:
1. INCORPORATION WITHIN AGREEMENT. This Addendum to the Agreement for
Technology Services shall be incorporated in the Agreement as if fully
set forth therein and shall for all intents and purposes be and become
a part of the Agreement.
2. MODIFICATION OF PARAGRAPH 2.1. The second and third sentences of
Paragraph 2.1 are modified to read as follows:
"Unless either party gives the other party written notice of intent to
terminate, at least six (6) months prior to the expiration date of the
Initial Term, then this Agreement will automatically renew for an
additional eighteen (18) months (the "Renewal Term"). Thereafter,
unless either party gives the other party written notice of intent to
terminate at least six (6) months prior to the expiration date of the
Renewal Term, then this Agreement will automatically renew for an
additional eighteen (18) months and continue until either party
terminates this Agreement under the foregoing terms."
3. MODIFICATION OF PARAGRAPH 3.1(B). Modify Paragraph 3.1(b) by deleting
the phrase "AND EDS AGREES TO PROVIDE".
4. MODIFICATION OF PARAGRAPH 3.2(b). Modify the first sentence of
Paragraph 3.2(b) to read as follows: "PROVIDE ALL EQUIPMENT AT
CUSTOMER'S EXPENSE, PLUS AN EDS MANAGEMENT FEE NOT TO EXCEED TEN
PERCENT (10%) OF EDS' COST(S), INCLUDING RELATED SHIPPING,
INSTALLATION, AND MAINTENANCE CHARGES, AND ADVISE CUSTOMER ON THE
COMPATIBILITY OF ITS EQUIPMENT WITH THE EDS SYSTEMS."
5. MODIFICATION OF PARAGRAPH 3.4. Modify the first sentence of Paragraph
3.4 to read as follows: "EDS WILL USE COMMERCIALLY REASONABLE EFFORTS
TO MAINTAIN THE EDS SYSTEMS SO THAT THEY WILL NOT BE DISAPPROVED BY ANY
FEDERAL OR STATE REGULATORY AUTHORITY WITH JURISDICTION OVER CUSTOMER'S
BUSINESS."
6. MODIFICATION OF PARAGRAPH 3.4. The following is added to the end of
Paragraph 3.4 to read as follows:
Addendum 1-1
<PAGE>
"BY ENTERING INTO THIS AGREEMENT, EDS AGREES THAT THE OFFICE OF THRIFT
SUPERVISION ("OTS") WILL HAVE THE AUTHORITY AND RESPONSIBILITY PROVIDED
TO THE OTHER REGULATORY AGENCIES PURSUANT TO THE BANK SERVICE
CORPORATION ACT, 12 U.S.C. 1867(C) RELATING TO SERVICES PERFORMED BY
CONTRACT OR OTHERWISE. EDS WILL, AT CUSTOMER'S EXPENSE, PROVIDE THE OTS
DISTRICT DIRECTOR OF THE DISTRICT IN WHICH THE DATA CENTER IS LOCATED
WITH ONE COPY OF (i) EDS' MOST RECENT INDEPENDENT DATA CENTER EDP AUDIT
WHEN SUCH AN AUDIT HAS BEEN PERFORMED AND (ii) EDS' MOST RECENT AUDITED
FINANCIAL STATEMENTS."
7. REPLACEMENT OF PARAGRAPH 3.5. Paragraph 3.5 shall be deleted in its
entirety and replaced with the following:
"3.5 FINANCIAL STATEMENTS AND EDP AUDIT. EDS WILL PROVIDE AT NO
CHARGE ONE COPY OF EDS' MOST RECENT AUDITED FINANCIAL
STATEMENTS TO CUSTOMER. EDS WILL ALSO PROVIDE TO CUSTOMER ONE
COPY OF EDS' MOST RECENT INDEPENDENT DATA CENTER EDP AUDIT, IN
AN INDUSTRY ACCEPTABLE FORMAT, AT EDS' THEN STANDARD CHARGE
FOR SUCH COPY; PROVIDED, HOWEVER, THAT SUCH CHARGE WILL NOT
EXCEED $1,500 FOR ANY ONE COPY. EDS WILL ENGAGE AN INDEPENDENT
THIRD PARTY TO CONDUCT A DATA CENTER EDP AUDIT ON AN ANNUAL
BASIS."
8. ADDITION OF PARAGRAPH 3.8. A new Paragraph 3.8 is hereby added to the
Agreement and reads as follows:
"3.8 PERFORMANCE STANDARDS: PERFORMANCE STANDARDS FOR THE SERVICES
ARE SET FORTH IN SCHEDULE F ("PERFORMANCE STANDARDS").
COMPLIANCE WITH PERFORMANCE STANDARDS WILL BE DETERMINED ON A
CALENDAR MONTH BASIS. IN ADDITION TO THE OTHER PROVISIONS OF
SCHEDULE F, IF EDS DOES NOT, DURING ANY CALENDAR MONTH, MEET
OR EXCEED ANY OF THE PERFORMANCE STANDARDS, THEN CUSTOMER AND
EDS WILL COOPERATE TO DETERMINE THE CAUSE THEREFOR AND THE
PARTY RESPONSIBLE FOR THE FAILURE TO MEET THE PERFORMANCE
STANDARDS. "
9. REPLACEMENT OF PARAGRAPH 4.3. Paragraph 4.3 shall be deleted in its
entirety and replaced with the following:
"4.3 CORRECTION OF REPORTS AND OUTPUT. CUSTOMER WILL BALANCE
REPORTS TO VERIFY MASTER FILE INFORMATION AND WILL INSPECT AND
REVIEW ALL REPORTS AND OTHER OUTPUT (WHETHER PRINTED,
MICROFICHED OR ELECTRONICALLY TRANSMITTED) CREATED FROM DATA
PROVIDED BY CUSTOMER TO EDS. CUSTOMER WILL REJECT ALL
INCORRECT REPORTS OR OUTPUT (i) WITHIN FIVE (5) BUSINESS DAYS
AFTER RECEIPT OF DAILY REPORTS OR OUTPUT, (ii) WITHIN TEN (10)
BUSINESS DAYS AFTER RECEIPT OF MONTHLY REPORTS OR OUTPUT,
(iii) WITHIN THIRTY (30) BUSINESS DAYS AFTER RECEIPT OF ANNUAL
OR QUARTERLY REPORTS OR OUTPUT, (iv) WITHIN TEN (10) BUSINESS
DAYS AFTER RECEIPT OF ALL OTHER REPORTS OR OUTPUT AND (v)
WITHIN 10 BUSINESS DAYS AFTER RECEIPT OF NOTICE FROM CUSTOMERS
OF CUSTOMER, BUT IN NO EVENT TO EXCEED A TOTAL OF SIXTY (60)
DAYS FROM THE DATE SUCH REPORTS OR OUTPUT WERE MAILED, FOR ALL
MISER DEPOSIT AND LOAN MONTHLY STATEMENTS."
10. MODIFICATION OF PARAGRAPH 4.6. Modify Paragraph 4.6 by adding the
following at the end of the Paragraph: "NOTWITHSTANDING THE FOREGOING,
EDS SHALL PROVIDE TO CUSTOMER, OR ITS CUSTOMER SYSTEMS PROVIDER, A
MINIMUM OF THREE (3) MONTHS ADVANCE NOTICE OF ANY MATERIAL CHANGES TO
EDS' SYSTEMS THAT MAY AFFECT COMPATIBILITY WITH CUSTOMER SYSTEM(S)."
11. MODIFICATION OF PARAGRAPH 5.1(a). Modify Paragraph 5.1(a) by the
addition of the phrase "PRORATED FOR PARTIAL MONTHS SERVICE" at the end
of this paragraph.
12. MODIFICATION OF PARAGRAPH 5.1(c). Modify Paragraph 5.1(c) by the
addition of the phrase "PRORATED FOR PARTIAL MONTHS SERVICE" at the end
of this paragraph.
13. MODIFICATION OF PARAGRAPH 5.2(b). Modify the phrase "TRAVEL AND
TRAVEL-RELATED EXPENSES" in the first sentence to read "REASONABLE
TRAVEL AND TRAVEL-RELATED EXPENSES".
14. MODIFICATION OF PARAGRAPH 5.3. Modify the first sentence of Paragraph
5.3 to read as follows: "ALL CHARGES UNDER THIS AGREEMENT WILL BE DUE
AND PAYABLE WITHIN THIRTY (30) DAYS OF INVOICE DATE."
Addendum 1-2
<PAGE>
15. MODIFICATION OF PARAGRAPH 6.5(e). Modify the first sentence of
Paragraph 6.5(e) by the addition of the following fourth bullet: "(iv)
ANY SIMILAR CONTINGENCY PLANNING REQUIREMENTS OF THE OFFICE OF THRIFT
SUPERVISION."
16. REPLACEMENT OF PARAGRAPH 7.2. Paragraph 7.2 shall be deleted in
its entirety and replaced with the following:
"7.2 TERMINATION DUE TO ACQUISITION. IF (i) FIFTY PERCENT OR MORE
OF THE STOCK OR ASSETS OF CUSTOMER, OR CUSTOMER'S HOLDING
COMPANY, ARE ACQUIRED BY ANOTHER PERSON OR ENTITY, WHETHER BY
MERGER, REORGANIZATION, SALE, TRANSFER, OR OTHER SIMILAR
TRANSACTION, (ii) CUSTOMER IS NOT THE SURVIVING ENTITY, AND
(iii) CUSTOMER'S DATA WILL BE PROCESSED BY THE ACQUIRING
ENTITY OR ITS CURRENT VENDOR, THEN EDS AND CUSTOMER WILL
NEGOTIATE IN GOOD FAITH THE TERMS AND CONDITIONS UPON WHICH
THIS AGREEMENT MAY BE MODIFIED TO ACCOMMODATE SUCH
TRANSACTION. IF THE PARTIES ARE UNABLE TO AGREE UPON SUCH
MODIFICATION, EITHER PARTY MAY TERMINATE THIS AGREEMENT UPON
EITHER A MUTUALLY AGREEABLE DATE OR, IN THE EVENT THE PARTIES
ARE UNABLE TO AGREE ON SUCH DATE, THE LATER OF (i)
CONSUMMATION OF THE ACQUISITION OR (ii) A DATE BASED ON THE
FOLLOWING TABLE:
i. TWELVE MONTHS FOLLOWING WRITTEN NOTICE FROM
EITHER PARTY IF SUCH NOTICE IS PROVIDED IN
MONTHS ONE THROUGH TWELVE (1-12) FOLLOWING
THE OPERATIONAL DATE.
ii. NINE (9) MONTHS FOLLOWING WRITTEN NOTICE
FROM EITHER PARTY IF SUCH NOTICE IS PROVIDED
IN MONTHS THIRTEEN THROUGH THIRTY-SIX
(13-36) FOLLOWING THE OPERATIONAL DATE.
iii. SIX (6) MONTHS FOLLOWING WRITTEN NOTICE FROM
EITHER PARTY IF SUCH NOTICE IS PROVIDED IN
MONTHS THIRTY-SEVEN THROUGH SIXTY (37-60)
FOLLOWING THE OPERATIONAL DATE.
NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY, IN
THE EVENT CUSTOMER IS ACQUIRED BY ANOTHER FINANCIAL
INSTITUTION WHICH IS A PRE-EXISTING, CONTRACTUAL CUSTOMER OF
EDS FOR THE PROVISION OF SUBSTANTIALLY THE SAME SERVICES AS
THOSE PROVIDED UNDER THIS AGREEMENT USING THE MISER OPERATING
SYSTEM, THEN CUSTOMER MAY TERMINATE THIS AGREEMENT PURSUANT TO
THIS SECTION 7.2 AND WILL PAY TO EDS THE AMOUNTS DESCRIBED IN
SECTION 7.7, AND NOT THOSE AMOUNTS DESCRIBED IN SECTION 7.6."
17. REPLACEMENT OF PARAGRAPH 7.4. Paragraph 7.4 shall be deleted in
its entirety and replaced with the following:
"7.4 TERMINATION FOR CAUSE., IF EITHER PARTY MATERIALLY OR
REPEATEDLY DEFAULTS IN ITS PERFORMANCE UNDER THIS AGREEMENT
(EXCEPT FOR (i) NON-PAYMENT OF AMOUNTS DUE TO EDS WHICH SHALL
BE GOVERNED BY THE PROVISIONS OF SECTION 7.3 AND (ii) EDS'
FAILURE TO MEET PERFORMANCE STANDARDS WHICH SHALL BE GOVERNED
BY THE PROVISIONS OF SCHEDULE F) AND FAILS TO EITHER
SUBSTANTIALLY CURE SUCH DEFAULT WITHIN NINETY DAYS AFTER
RECEIVING WRITTEN NOTICE SPECIFYING THE DEFAULT OR, FOR THOSE
DEFAULTS WHICH CANNOT REASONABLY BE CURED WITHIN NINETY DAYS,
PROMPTLY COMMENCE CURING SUCH DEFAULT AND THEREAFTER PROCEED
WITH ALL DUE DILIGENCE TO SUBSTANTIALLY CURE THE DEFAULT, THEN
THE PARTY NOT IN DEFAULT MAY, BY GIVING THE DEFAULTING PARTY
AT LEAST THIRTY DAYS PRIOR WRITTEN NOTICE THEREOF, TERMINATE
THIS AGREEMENT AS OF A DATE SPECIFIED IN SUCH NOTICE. THE
PARTIES AGREE THAT MATERIALLY OR REPEATEDLY INCORRECT REPORTS
OR OUTPUT PROVIDED BY EDS AND REJECTED BY CUSTOMER WITHIN THE
TIMEFRAMES SPECIFIED IN SECTION 4.3 SHALL BE SUBJECT TO THE
PROVISIONS OF THIS SECTION 7.4."
Addendum 1-3
<PAGE>
18. MODIFICATION OF PARAGRAPH 7.6(a). The following is added to the
end of Paragraph 7.6(a) to read as follows:
"EDS WILL PERFORM ANY ADDITIONAL SERVICES REASONABLY REQUESTED BY
CUSTOMER FOR DECONVERSION ASSISTANCE AT EDS' THEN STANDARD CHARGES;
PROVIDED, HOWEVER, THAT IN THE EVENT EDS TERMINATES THIS AGREEMENT
PURSUANT TO SECTIONS 7.3 OR 7.5, ALL SUCH CHARGES WILL BE PAID BY
CUSTOMER ON A MONTHLY BASIS IN ADVANCE."
19. REPLACEMENT OF PARAGRAPH 7.6 (b). Paragraph 7.6(b) shall be deleted
in its entirety and replaced with the following:
"(b) (i) IN THE EVENT OF TERMINATION OF THIS AGREEMENT PURSUANT TO
SECTION 7.3, 7.4, 7.5 OR 7.8 (BUT EXCLUDING BY ELECTION BY
EITHER PARTY NOT TO RENEW PURSUANT TO SECTION 2.1 OR
TERMINATION BY CUSTOMER PURSUANT TO SECTION 7.4 OR 9.5 OR
SECTION 4 OF SCHEDULE F) FIFTY PERCENT (50%) OF THE TOTAL
COMPENSATION WHICH WOULD HAVE BEEN PAID OR REIMBURSED TO EDS
UNDER THIS AGREEMENT DURING THE REMAINDER OF ITS TERM. THE
AMOUNT OF TOTAL COMPENSATION WILL BE COMPUTED BY MULTIPLYING
THE TOTAL NUMBER OF MONTHS REMAINING IN THE INITIAL TERM OR
THE RENEWAL TERM THEN IN EFFECT FROM THE EFFECTIVE DATE OF THE
TERMINATION BY THE MINIMUM CHARGE FOR BASIC SERVICES UNDER
THIS AGREEMENT DURING THE TWELVE CALENDAR MONTHS IMMEDIATELY
PRECEDING THE CALENDAR MONTH IN WHICH NOTICE OF TERMINATION
WAS GIVEN, AND MULTIPLYING THAT NUMBER BY FIFTY PERCENT (50%).
THIS IS EXPRESSED MATHEMATICALLY AS FOLLOWS:
(NUMBER OF MONTHS REMAINING IN TERM) X (MINIMUM CHARGE FOR
BASIC SERVICES FOR THE TWELVE MONTHS PRECEDING NOTICE OF
TERMINATION) X 0.50
IF THIS AGREEMENT HAS BEEN IN EFFECT LESS THAN TWELVE CALENDAR
MONTHS PRIOR TO THE GIVING OF THE NOTICE OF TERMINATION, THEN
THE PARTIES WILL COMPUTE THE AMOUNT DUE UNDER THIS SUBSECTION
(b) USING THE MINIMUM CHARGE FOR BASIC SERVICES DURING THE
LESSER NUMBER OF CALENDAR MONTHS. IF TERMINATION OF THIS
AGREEMENT OCCURS PRIOR TO THE OPERATIONAL DATE, THEN THE
PARTIES WILL COMPUTE THE AMOUNT DUE UNDER THIS SUBSECTION (b)
ASSUMING THAT THE OPERATIONAL DATE HAD OCCURRED WHEN SCHEDULED
BY EDS AND USING THE MINIMUM CHARGE FOR BASIC SERVICE TO BE
PAID BY CUSTOMER AFTER THE OPERATIONAL DATE.
(ii) IN THE EVENT OF TERMINATION OF THIS AGREEMENT PURSUANT TO
SECTION 7.2, THE AMOUNT OF TOTAL COMPENSATION WILL BE
COMPUTED AS FOLLOWS:
i. $300,000.00 IF WRITTEN NOTICE OF SUCH TERMINATION FROM
EITHER PARTY IS PROVIDED IN MONTHS ONE THROUGH TWELVE
(1-12) FOLLOWING THE OPERATIONAL DATE.
ii. $200,000.00 IF WRITTEN NOTICE OF SUCH TERMINATION FROM
EITHER PARTY IS PROVIDED IN MONTHS THIRTEEN THROUGH
TWENTY-FOUR (13-24) FOLLOWING THE OPERATIONAL DATE.
iii. $150,000.00 IF WRITTEN NOTICE OF SUCH TERMINATION FROM
EITHER PARTY IS PROVIDED IN MONTHS TWENTY-FIVE THROUGH
THIRTY-SIX (25-36) FOLLOWING THE OPERATIONAL DATE. IV.
$75,000.00 IF WRITTEN NOTICE OF SUCH TERMINATION FROM
EITHER PARTY IS PROVIDED IN MONTHS THIRTY-SEVEN THROUGH
FORTY-EIGHT (37-48) FOLLOWING THE OPERATIONAL DATE.
v. $50,000.00 IF WRITTEN NOTICE OF SUCH TERMINATION FROM
EITHER PARTY IS PROVIDED IN MONTHS FORTY-NINE THROUGH
SIXTY (49-60) FOLLOWING THE OPERATIONAL DATE.
(iii) AMOUNTS PAYABLE UNDER SECTION 7.6(B) SHALL BE PAID UPON
SUBMISSION OF THE APPLICABLE TERMINATION NOTICE. ALL OTHER
AMOUNTS UNDER THIS SECTION 7.6 WILL BE INVOICED AND PAID PRIOR
TO THE EFFECTIVE DATE OF SUCH TERMINATION AND PRIOR TO THE
RELEASE OF ANY TEST TAPES OR OTHER DATA OF CUSTOMER."
Addendum 1-4
<PAGE>
20. ADDITION OF PARAGRAPH7.8. A new Paragraph 7.8 is hereby added to the
Agreement and reads as follows:
"7.8 TERMINATION FOR CONVENIENCE. AT ANY TIME, FOR ANY REASON,
AFTER THE LAST DAY OF THE FIRST MONTH FOLLOWING THE MONTH IN
WHICH THE OPERATION DATE OCCURS AND AS LONG AS CUSTOMER IS NOT
THEN AND DOES NOT BECOME IN DEFAULT UNDER THIS AGREEMENT,
CUSTOMER MAY TERMINATE THIS AGREEMENT FOR CONVENIENCE AND
WITHOUT CAUSE BY GIVING EDS AT LEAST SIX (6) MONTHS' PRIOR
WRITTEN NOTICE DESIGNATING THE EFFECTIVE DATE OF TERMINATION
AS LONG AS CUSTOMER IS NOT THEN AND DOES NOT BECOME IN DEFAULT
UNDER THIS AGREEMENT PRIOR TO THE TERMINATION DATE AND PAYS TO
EDS, ON OR BEFORE THE TERMINATION DATE, ALL AMOUNTS SET FORTH
IN SECTION 7.6(a) AND SECTION 7.6(b)(i)."
21. ADDITION OF PARAGRAPH 7.9. A new paragraph 7.9 is hereby added to the
Agreement and reads as follows:
"7.9 REGULATORY TERMINATION. IN THE EVENT THAT CONTROL OF CUSTOMER
IS ASSUMED BY THE OFFICE OF THRIFT SUPERVISION, THE FEDERAL
DEPOSIT INSURANCE CORPORATION, OR ANOTHER DULY AUTHORIZED
PUBLIC AUTHORITY, THEN EITHER PARTY MAY, BY GIVING PRIOR
NOTICE TO THE OTHER PARTY, TERMINATE THIS AGREEMENT AND THE
PAYMENT DUE UPON TERMINATION AS SET FORTH IN SECTION 7.6 SHALL
NOT INCLUDE THE AMOUNT DESCRIBED IN SECTION 7.6(b)(i)."
22. REPLACEMENT OF PARAGRAPH 8.1. Paragraph 8.1 shall be deleted in its
entirety and replaced with the following:
"8.1 LIMITATION OF LIABILITY. IF EDS BECOMES LIABLE TO THE CUSTOMER
UNDER THIS AGREEMENT FOR ANY REASON (INCLUDING LIABILITY
ARISING FROM MATERIALLY OR REPEATEDLY INCORRECT REPORTS OR
OUTPUT PROVIDED BY EDS, WHETHER ARISING BY NEGLIGENCE OR
OTHERWISE, THEN (a) THE DAMAGES RECOVERABLE AGAINST EDS FOR
ALL EVENTS, ACTS, DELAYS, OR OMISSIONS WILL NOT EXCEED IN THE
AGGREGATE THE COMPENSATION PAYABLE TO EDS PURSUANT TO SECTION
5.1 OF THIS AGREEMENT FOR THE LESSER OF THE MONTHS THAT HAVE
ELAPSED SINCE THE OPERATIONAL DATE OR THE SIX (6) MONTHS
ENDING WITH THE LATEST MONTH IN WHICH OCCURRED THE EVENTS,
ACTS, DELAYS OR OMISSIONS FOR WHICH DAMAGES ARE CLAIMED, AND
(b) THE MEASURE OF DAMAGES WILL NOT INCLUDE ANY AMOUNTS FOR
INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES OF ANY PARTY,
INCLUDING THIRD PARTIES, . THE PARTIES AGREE THAT CUSTOMER HAS
A DUTY TO EXERCISE REASONABLE DILIGENCE, CONSISTENT WITH THE
CUSTOMS OF THE BANKING INDUSTRY, TO IDENTIFY AND CORRECT
READILY APPARENT ERRORS IN THE REPORTS AND OUTPUT PRODUCED BY
EDS BEFORE USING SUCH REPORTS AND OUTPUT, AND EDS SHALL HAVE
NO LIABILITY TO CUSTOMER FOR SUCH READILY APPARENT ERRORS IF
CUSTOMER, IN THE EXERCISE OF SUCH REASONABLE DILIGENCE, COULD
HAVE IDENTIFIED SUCH ERRORS WITHIN THE TIMEFRAMES SPECIFIED IN
SECTION 4.3. CUSTOMER MAY NOT ASSERT ANY CAUSE OF ACTION
AGAINST EDS OF WHICH CUSTOMER KNEW OR SHOULD HAVE KNOWN MORE
THAN TWO (2) YEARS PRIOR TO SUCH ASSERTION. IN CONNECTION WITH
THE CONDUCT OF ANY LITIGATION WITH THIRD PARTIES RELATING TO
ANY LIABILITY OF EDS TO CUSTOMER OR TO SUCH THIRD PARTIES, EDS
WILL HAVE ALL RIGHTS WHICH ARE APPROPRIATE TO ITS POTENTIAL
RESPONSIBILITIES OR LIABILITIES. EDS WILL HAVE THE RIGHT TO
PARTICIPATE IN ALL SUCH LITIGATION AND TO SETTLE OR COMPROMISE
ITS LIABILITY TO THIRD PARTIES."
Addendum 1-5
<PAGE>
23. REPLACEMENT OF PARAGRAPH 8.2. Paragraph 8.2 shall be deleted in its
entirety and replaced with the following:
"8.2 WARRANTY.
(a) PERFORMANCE. EDS REPRESENTS AND WARRANTS TO EXERCISE
REASONABLE CARE IN PERFORMING SERVICES AND THAT ALL SERVICES
WILL BE PERFORMED IN A PROFESSIONAL AND WORKMANLIKE MANNER.
(b) VIRUSES. EDS WILL USE COMMERCIALLY REASONABLE MEASURES TO
SCREEN ANY SOFTWARE PROVIDED OR MADE AVAILABLE BY IT TO THE
OTHER PARTY HEREUNDER FOR THE PURPOSE OF AVOIDING THE
INTRODUCTION OF ANY "VIRUS" OR OTHER COMPUTER SOFTWARE ROUTINE
OR HARDWARE COMPONENTS WHICH ARE DESIGNED (i) TO PERMIT ACCESS
OR USE BY THIRD PARTIES TO THE SOFTWARE OF THE OTHER PARTY NOT
AUTHORIZED BY THIS AGREEMENT, (ii) TO DISABLE OR DAMAGE
HARDWARE OR DAMAGE, ERASE OR DELAY ACCESS TO SOFTWARE OR DATA
OR (iii) TO PERFORM ANY OTHER SIMILAR ACTIONS.
(c) PASS-THROUGH WARRANTIES AND INDEMNITIES. EDS AGREES THAT IT
WILL PASS THROUGH TO CUSTOMER ANY RIGHTS IT OBTAINS UNDER
WARRANTIES AND INDEMNITIES GIVEN BY ITS THIRD PARTY
SUBCONTRACTORS OR SUPPLIERS IN CONNECTION WITH ANY SERVICES,
SOFTWARE, EQUIPMENT OR OTHER PRODUCTS PROVIDED BY EDS PURSUANT
TO THIS AGREEMENT TO THE EXTENT PERMITTED BY THE APPLICABLE
SUBCONTRACTORS OR SUPPLIERS. IN THE EVENT OF A THIRD PARTY
SOFTWARE OR EQUIPMENT NONCONFORMANCE, EDS WILL COORDINATE
WITH, AND BE THE POINT OF CONTACT FOR RESOLUTION OF THE
PROBLEM THROUGH, THE APPLICABLE VENDOR AND, UPON BECOMING
AWARE OF A PROBLEM, WILL NOTIFY SUCH VENDOR AND WILL USE
COMMERCIALLY REASONABLE EFFORTS TO CAUSE SUCH VENDOR TO
PROMPTLY REPAIR OR REPLACE THE NONCONFORMING ITEM IN
ACCORDANCE WITH SUCH VENDOR'S WARRANTY. IF ANY WARRANTIES OR
INDEMNITIES MAY NOT BE PASSED THROUGH, EDS AGREES THAT IT
WILL, UPON THE REQUEST OF CUSTOMER, TAKE REASONABLE ACTION TO
ENFORCE ANY APPLICABLE WARRANTY OR INDEMNITY WHICH IS
ENFORCEABLE BY EDS IN ITS OWN NAME. HOWEVER, EDS WILL HAVE NO
OBLIGATION TO RESORT TO LITIGATION OR OTHER FORMAL DISPUTE
RESOLUTION PROCEDURES TO ENFORCE ANY SUCH WARRANTY OR
INDEMNITY UNLESS EDS CHOOSES TO DO SO AND CUSTOMER AGREES TO
REIMBURSE EDS FOR ALL COSTS AND EXPENSES INCURRED IN
CONNECTION THEREWITH, INCLUDING REASONABLE ATTORNEYS' FEES AND
EXPENSES.
(d) DISCLAIMER OF WARRANTIES. EXCEPT AS OTHERWISE EXPRESSLY
PROVIDED IN THIS SECTION 8.2, EDS DISCLAIMS ALL OTHER
WARRANTIES, EXPRESS OR IMPLIED, IN FACT OR BY OPERATION OF LAW
OR OTHERWISE, CONTAINED IN OR DERIVED FROM THIS AGREEMENT, ANY
OF THE SCHEDULES ATTACHED HERETO, ANY OTHER DOCUMENTS
REFERENCED HEREIN, OR IN ANY OTHER MATERIALS, PRESENTATIONS OR
OTHER DOCUMENTS OR COMMUNICATIONS WHETHER ORAL OR WRITTEN,
INCLUDING WITHOUT LIMITATION IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE."
24. MODIFICATION OF PARAGRAPH 8.3. The second sentence of Paragraph 8.3
is amended to read as follows:
Addendum 1-6
<PAGE>
"SUCH NONPERFORMANCE WILL NOT BE A DEFAULT OR A GROUND FOR TERMINATION
SO LONG AS (i) IT COULD NOT HAVE BEEN PREVENTED BY REASONABLE
PRECAUTIONS AND (ii) REASONABLE MEANS ARE TAKEN TO EXPEDITIOUSLY REMEDY
THE PROBLEM CAUSING SUCH NONPERFORMANCE. TO THE EXTENT THAT CONTINGENCY
PLANNING SERVICES ARE INCLUDED IN THE SERVICES, THE FOREGOING WILL NOT
LIMIT EDS' OBLIGATION TO PROVIDE SUCH SERVICES UNLESS THEY ALSO ARE
AFFECTED BY THE FORCE MAJEURE EVENT."
25. ADDITION OF PARAGRAPH 8.6. A new Paragraph 8.6 is hereby added to the
Agreement and reads as follows:
"8.6 PATENT INDEMNITY. EDS WILL INDEMNIFY, DEFEND, AND HOLD
HARMLESS CUSTOMER FROM ANY AND ALL CLAIMS, ACTIONS, DAMAGES,
LIABILITIES, COSTS AND EXPENSES (INCLUDING WITHOUT LIMITATION,
REASONABLE ATTORNEYS' FEES AND EXPENSES) ARISING OUT OF ANY
CLAIMS OF INFRINGEMENT BY EDS OF ANY U.S. LETTERS PATENT, ANY
TRADE SECRET, OR ANY COPYRIGHT, TRADEMARK, SERVICE MARK, TRADE
NAME OR SIMILAR PROPRIETARY RIGHTS CONFERRED BY COMMON LAW OR
BY ANY LAW OF THE UNITED STATES OR ANY STATE ALLEGED TO HAVE
OCCURRED BECAUSE OF SYSTEMS PROVIDED OR WORK PERFORMED BY EDS.
HOWEVER, THE INDEMNITY WILL NOT APPLY UNLESS CUSTOMER INFORMS
EDS AS SOON AS PRACTICABLE OF ANY CLAIM OR ACTION ALLEGING
SUCH INFRINGEMENT, AND HAS GIVEN EDS FULL OPPORTUNITY TO
CONTROL THE RESPONSE THERETO AND THE DEFENSE THEREOF,
INCLUDING, WITHOUT LIMITATION, ANY AGREEMENT RELATING TO
SETTLEMENT. EDS WILL NOT BE LIABLE TO CUSTOMER FOR CLAIMS OF
INDIRECT OR CONTRIBUTORY INFRINGEMENT."
26. ADDITION OF PARAGRAPH 8.7. A new Paragraph 8.7 is hereby added to the
Agreement and reads as follows:
"8.7 ATTORNEYS' FEES. IF THERE IS AN ARBITRATION PROCEEDING
PURSUANT TO THE PROVISIONS OF SECTION 7.1, THE PREVAILING
PARTY SHALL BE ENTITLED TO RECOVER REASONABLE ATTORNEYS' FEES
AND OTHER COSTS INCURRED IN THAT ACTION OR PROCEEDING,
INCLUDING. IN ADDITION TO ANY OTHER RELIEF TO WHICH IT MAY BE
ENTITLED, RECOVERY OF ANY REASONABLE ATTORNEYS' FEES INCURRED
BY THE PREVAILING PARTY IF ANY LEGAL ACTION OR OTHER
PROCEEDING IS BROUGHT FOR THE ENFORCEMENT OF AN AWARD UNDER
SECTION 7.1."
27. REPLACEMENT OF PARAGRAPH 9.3. Paragraph 9.3 shall be deleted in
its entirety and replaced with the following:
"9.3 NOTICES. ANY NOTICE UNDER THIS AGREEMENT WILL BE DEEMED TO BE
GIVEN WHEN (i) DELIVERED BY HAND OR WHEN MAILED BY REGISTERED
UNITED STATES MAIL, RETURN RECEIPT REQUESTED, AND (ii)
ADDRESSED TO THE RECIPIENT PARTY AT ITS ADDRESS SET FORTH
BELOW:
IF TO CUSTOMER:
FIDELITY FEDERAL BANK, FSB
4565 COLORADO BLVD.
LOS ANGELES, CALIFORNIA 90039
ATTENTION: PRESIDENT
WITH COPY TO:
FIDELITY FEDERAL BANK, FSB
4565 COLORADO BLVD.
LOS ANGELES, CALIFORNIA 90039
ATTENTION: LEGAL DEPARTMENT;
IF TO EDS:
EDS
1901 SUMMIT TOWER BOULEVARD
ORLANDO, FL 32810-5910
ATTN: PRESIDENT, MISER DIVISION.
Addendum 1-7
<PAGE>
EITHER PARTY MAY FROM TIME TO TIME CHANGE ITS ADDRESS FOR
NOTIFICATION PURPOSES, BY GIVING THE OTHER PRIOR WRITTEN
NOTICE OF THE NEW ADDRESS AND THE DATE UPON WHICH IT WILL
BECOME EFFECTIVE."
28. MODIFICATION OF PARAGRAPH 9.9. Modify the phrase "STATE OF TEXAS" in
the first sentence of Paragraph 9.9 to read "STATE OF DELAWARE".
29. EFFECT OF ADDENDUM. Except for the foregoing described changes to the
Agreement, the Agreement shall in all other respects remain in full
force and effect, unchanged hereby. By execution of this Addendum
Customer agrees to be bound by the terms of the Agreement in each and
every respect with regard to the changes created in this Addendum as if
this Addendum had been fully set forth in the Agreement. There shall be
no change in the warranties, representations, liabilities, or
obligations of EDS under the Agreement by virtue of this Addendum
except as expressly set forth herein.
Addendum 1-8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Addendum in
manner and form sufficient to bind them on the day and year indicated after
their respective execution hereof.
Customer: Accepted by:
FIDELITY FEDERAL BANK ELECTRONIC DATA SYSTEMS CORPORATION
By: /S/ JAMES E. STUTZ By: /S/ PAUL W. DUCKHAM
- ----------------------------------- -----------------------------------
Authorized Signature Authorized Signature
JAMES E. STUTZ, PAUL W. DUCKHAM,
President and Chief Operating Officer President, MISER Division
- ----------------------------------- -----------------------------------
Type or Print Name and Title Type or Print Name and Title
December 3, 1999 December 9, 1999
- ----------------------------------- -----------------------------------
Date Date
Addendum 1-9
Exhibit No. 10.6
AGREEMENT TO PURCHASE
ASSETS AND ASSUME LIABILITIES
BY AND BETWEEN
FIDELITY FEDERAL BANK, A FEDERAL SAVINGS BANK
AND
FIRST FEDERAL BANK OF CALIFORNIA
<PAGE>
AGREEMENT TO PURCHASE ASSETS
AND ASSUME LIABILITIES
This Agreement to Purchase Assets and Assume Liabilities ("Agreement")
is made and entered into this 7th day of February, 2000 ("Signature Date"), by
and between FIRST FEDERAL BANK OF CALIFORNIA, a federally chartered savings bank
("Buyer"), and FIDELITY FEDERAL BANK, A FEDERAL SAVINGS BANK, a federally
chartered savings bank ("Fidelity" or Seller").
RECITALS
--------
A. Buyer desires to acquire certain branches and branch assets and to
assume certain liabilities of the Branches (as defined below) which Seller is
authorized to operate, and Seller desires to transfer such assets and
liabilities of the Branches to Buyer.
B. Buyer and Seller propose to apply to the appropriate regulatory
authorities for permission to effect the purchase and sale of the Branches and
for such other requisite approvals as may be necessary for the consummation of
the transactions contemplated by this Agreement.
C. Buyer and Seller wish to consummate the transaction contemplated by
this Agreement in a timely and efficient manner.
AGREEMENT
---------
In consideration of the foregoing and the representations, covenants
and agreements set forth in this Agreement, and subject to the conditions set
forth herein, Buyer and Seller (the "Parties") hereto agree as follows:
ARTICLE I
DEFINITIONS
-----------
1.1 DEFINITIONS. As used in this Agreement, the following terms have
the definitions indicated:
"ACCOUNT LOANS" shall mean (i) all savings account loans secured by
Deposits and (ii) all checking account lines of credit or overdraft checking
loan balances related to the Deposits, which are listed on the books and records
of the Branches.
"ACCRUED INTEREST" means interest on Account Loans and Deposits which
is accrued but unpaid or unposted (as the case may be) through the applicable
date.
"ACH ITEMS" means automated clearing house debits and credits,
including, but not limited to, social security payments, federal recurring
payments, and other payments debited and/or credited on a regularly scheduled
basis to or from Deposit accounts pursuant to arrangements between the owner of
the account and a third party directly making the credits or debits.
<PAGE>
"AFFILIATE" of a party means any person, partnership, corporation,
association or other legal entity directly or indirectly controlling, controlled
by or under common control with that party.
"ASSETS" means the Account Loans, Real Estate, Fixed Assets, Safe
Deposit Boxes, Security Deposits, Cash on Hand and Records at the Branches.
"ASSIGNMENT AND ASSUMPTION AGREEMENT" shall have the meaning set forth
in Section 2.1(a).
"ATMs" means the automated teller machines located on the premises of
the Branches and includes the security systems associated therewith.
"BRANCHES" means the branch offices of Seller identified on Schedule
1.1 hereto.
"BRANCH LEASES" means the leases as listed on Schedule 1.1 and more
particularly described therein.
"BUSINESS DAY" means any Monday, Tuesday, Wednesday, Thursday, or
Friday that is not a federal or state holiday generally recognized by banks or
savings associations in the state of California.
"CASH ON HAND" means all cash in the vault and in the teller drawers at
the Branches.
"CLOSING" AND "CLOSING DATE" shall have the meanings set forth in
Section 4.1.
"CLOSING PAYMENT" shall have the meaning set forth in Section 4.2.
"DEPOSIT" means any deposit as defined in Section 3(l)(1) of the
Federal Deposit Insurance Act ("FDIA"), as amended, 12 U.S.C. Section
1813(l)(1), maintained at the Branches including, without limitation, the
aggregate balances of all savings accounts with positive balances domiciled at
the Branches, Keogh accounts, "NOW" accounts, other demand instruments,
Retirement Accounts, and all other accounts and deposits, together with Accrued
Interest thereon, if any; provided, that the term "Deposit" shall not include
all or any portion of those balances that are deemed to be (i) accounts subject
to escheatment, (ii) accounts of directors or senior officers of Seller or (iii)
brokered deposits as defined in 12 U.S.C. Section 1831f.
"DEPOSIT PREMIUM AMOUNT" means ________________________.
"EMPLOYEES" means all full- and part-time employees at the Branches at
any time from the Signature Date through the Closing.
"ENCUMBRANCES" means any and all mortgages, claims, charges, liens,
encumbrances, easements, restrictions, options, pledges, calls, commitments,
security interests, conditional sales agreements, title retention agreements,
leases and other restrictions of any kind whatsoever.
"ENVIRONMENTAL LAWS" means any federal, state, county or local law or
regulation relating to the environment or any Hazardous Substance.
2
<PAGE>
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"FAIR MARKET VALUE" shall mean the aggregate fair market value of the
Real Estate as determined in accordance with Section 3.1.
"FDIC" means the Federal Deposit Insurance Corporation or any successor
thereto.
"FIXED ASSETS" includes all furniture, fixtures, equipment, Leasehold
Improvements and all other tangible personal property owned or leased by Seller
(except for such property leased by Seller pursuant to bank-wide contracts or
leases), including without limitation ATMs, located at the Branches, excluding,
however: (i) the Cisco routers and Bay Networks hub 150s currently maintained at
the Branches, and (ii) all computers and printers located at the Branches.
"INITIAL APPRAISER" shall have the meaning set forth in Section 3.1.
"HAZARDOUS SUBSTANCES" means chemicals, pollutants, contaminants,
wastes and substances, in each case, that have been defined as toxic or
hazardous by any environmental agency having jurisdiction over the Branches,
including petroleum, petroleum products, asbestos and polychlorinated biphenyls.
"LANDLORDS" means the landlords with respect to the Branches.
"LEASEHOLD IMPROVEMENTS" means property or an article which has been
attached to or affixed to any of the Branches to facilitate the trade or
business for which the Seller occupies the premises, including, but not limited
to, teller lines, floor and wall coverings, vault doors and light fixtures, all
to the extent owned by Seller.
"LIABILITIES" means all liabilities being assumed by Buyer under
Section 2.3.
"NEGATIVE BALANCE DEPOSIT" means any Deposit which, as of the
applicable date, has a balance of less than zero.
"NET BOOK VALUE" means the net book value of an asset determined in
accordance with generally accepted accounting principles consistently applied
and as reflected in the books and records of Seller.
"OTS" means the Office of Thrift Supervision or any successor thereto.
"PARTY" means Buyer or Seller, and "Parties" means both Buyer and
Seller.
"PREPAYMENTS" means any expense payments paid in advance by Seller for
which the Closing Date is before the end of the period for which the expense
payment was made including, but not limited to, payments made for utilities, and
real property taxes and assessments.
"REAL ESTATE" means the Seller's interest as tenant relating to the
Branches.
"RECORDS" means: (i) all open records and original documents,
excluding Seller's counterparts of this Agreement and the documents related
thereto, located at the Branches or in centralized servicing areas pertaining to
the Account Loans and Deposits which are reasonably required for the Buyer to
conduct business and comply in all material respects, with all applicable laws,
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regulations, rules and business practices with respect to the Account Loans and
Deposits acquired from Seller pursuant to this Agreement; (ii) all available
account history of all accounts related to Deposits for a period including at
least the current year; (iii) signature cards, legal files, Safe Deposit Box
files, pending files, Account Loan agreements, Retirement Account agreements and
computer records and (iv) all documents relating to the Real Estate in the
possession of Seller; provided that Records in electronic form are limited to
the current year. Records shall not include personnel records for Employees at
the Branches or confidential and privileged documents maintained in the Seller's
legal department not otherwise required under this Agreement.
"RETIREMENT ACCOUNTS" means individual retirement accounts at the
Branches, including SEP individual retirement accounts or qualified plans.
"RETURNED ITEMS" shall have the meaning set forth in Section 13.4.
"SAFE DEPOSIT BOXES" shall mean all of the safe deposit boxes domiciled
at the Branches, along with the "nests" associated with those boxes and all keys
and combinations thereto.
"SECURITY DEPOSITS" means all security deposits related to the Branches
and held by the Landlords as of the Closing Date.
"SELLER'S KNOWLEDGE" or any phrase of similar import with respect to
the Real Estate shall be as defined in the Assignment and Assumption Agreement
and with respect to all other matters shall be limited to the actual knowledge
of the executive officers of Seller, after reasonable inquiry of the officers of
Seller having responsibility for the subject matter in question.
"SIGNATURE DATE" means the date set forth as such in the first
paragraph of this Agreement.
"THIRD APPRAISER" shall have the meaning set forth in Section 3.1.
"WITHHOLDING OBLIGATIONS" shall have the meaning set forth in Section
13.12.
ARTICLE II
TERMS OF PURCHASE AND ASSUMPTION
--------------------------------
2.1 PURCHASE AND SALE OF ASSETS.
(a) ASSETS. At the Closing and subject to the terms and
conditions set forth in this Agreement, Seller shall convey, assign and transfer
to Buyer and Buyer shall purchase from Seller all of Seller's right, title and
interest in and to the Assets. In furtherance of, and not in limitation of, the
foregoing, concurrently with execution of this Agreement, Buyer and Seller shall
enter into an assignment and assumption agreement with respect to the Real
Estate in substantially the form attached hereto as Exhibit A ("Assignment and
Assumption Agreement"), and such Assignment and Assumption Agreement shall
provide for deposit of funds upon the execution thereof and for the sale or
transfer of the Real Estate, as appropriate, at the Closing. In the event of any
conflict between this Agreement and the applicable Assignment and Assumption
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Agreement as to any matter relating to the Real Estate or the sale or transfer
thereof, the terms of the Assignment and Assumption Agreement shall be
controlling.
(b) ASSOCIATION NAME AND LOGO. Seller is not selling,
assigning, conveying, transferring or delivering, nor shall Buyer acquire any
rights or interest in or to (i) the names of Seller, or any combination or
derivation thereof, or (ii) any logos, service marks or trademarks of Seller or
any advertising materials or slogans or any similar items used before, on or
after the Closing Date by Seller in connection with its business.
(c) INVESTMENT PRODUCTS. Seller is not assigning, conveying,
transferring or delivering, nor shall Buyer acquire any rights or interest in or
to the right to service and administer nondeposit investment products currently
administered by Gateway Investment Services, Inc.
2.2 PURCHASE PRICE. In consideration for the Assets acquired by it
under this Agreement, Buyer shall assume at the Closing the liabilities of
Seller as set forth in Section 2.3, and shall pay to Seller at the Closing an
amount which is the sum of the following:
(a) The Net Book Value of the Fixed Assets as of the Closing
Date; plus
(b) The Net Book Value of the Safe Deposit Boxes as of the
month end immediately prior to the Closing Date; plus
(c) The Net Book Value plus Accrued Interest on the Account
Loans as of the Closing Date; plus
(d) A sum equal to the Cash on Hand as of the Closing Date;
plus
(e) The Fair Market Value of the Real Estate, the Security
Deposits and any prorations due from Buyer under the Assignment and Assumption
Agreement.
2.3 ASSUMPTION OF LIABILITIES.
(a) DEPOSITS. On the Closing Date, subject to the terms and
conditions set forth in this Agreement, Buyer shall (i) assume the liabilities
related to the Deposits as of the Closing Date in accordance with the terms of
such Deposits in effect on the Closing Date; (ii) assume Seller's obligation to
its Deposit customers accruing after the Closing Date in accordance with the
terms of such Deposits in effect on the Closing Date and (iii) be responsible
for modifying the terms of such customer relationships effective as of the
Closing Date as necessary to conform to Buyer's practices.
(b) RELATED ASSETS AND OBLIGATIONS. On the Closing Date, Buyer
will assume the obligations of Seller to provide all services incidental to the
Deposits including, but not limited to, providing Safe Deposit Boxes, as may be
modified to conform to Buyer's practice.
(c) REIMBURSEMENT FOR DEPOSITS. On the Closing Date, Seller
shall reimburse Buyer for the assumption by Buyer of the liabilities and
obligations relating to the Deposits an amount equal to (i) 100% of the
aggregate amount of the Deposits assumed by Buyer pursuant to Section 2.3(a)
above less (ii) the product of the Deposit Premium Amount and the aggregate
amount of Deposits on the Closing Date. All or substantially all of such
reimbursement shall be effected by means of Buyer's crediting to Seller the
Purchase Price under the Mortgage Loan Purchase Agreement. The parties agree
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that the premium reflected in the Deposit Premium Amount is attributable to
favorable interest rates on the Deposits acquired. Buyer and Seller agree that
the allocation of the Purchase Price will be made based on the relative fair
market value of the Assets acquired, as required by Section 1060 of the Internal
Revenue Code of 1986, as amended, and agree to utilize such allocation for
federal income tax purposes. Such allocation will be consistently reflected by
each Party on their federal income tax returns and similar documents, including
but not limited to Internal Revenue Service Form 8594. Neither Party shall file
any document or assert any position that conflicts or is inconsistent with such
allocation, and each Party agrees to inform the other promptly upon receipt of
any communication from (or forwarding any communication to) the Internal Revenue
Service relating to Form 8594. Each Party shall cooperate fully with the other
in filing Form 8594. Buyer shall prepare the Form 8594 and shall promptly submit
it to Seller for approval and to facilitate the consistent filing of such form
by Seller and Buyer.
(d) PRORATIONS. The pro rata amount of SAIF premiums
attributable to the Deposits, and paid in advance by Seller, shall be credited
to Seller at the Closing. Additionally, the pro rata amount of any Prepayments
shall be credited to Seller at the Closing.
(e) NO OTHER DEBT, OBLIGATIONS OR LIABILITIES ASSUMED. It is
understood and agreed that, except as expressly set forth in this Agreement and
the Assignment and Assumption Agreement, Buyer shall not assume or be liable for
any of the debts, obligations or liabilities of Seller of any kind or nature
whatsoever including, but not limited to, any tax or debt, any insurance
premium, any liability for unfair labor practices (such as wrongful termination
or employment discrimination) or under the WARN Act, any liability or obligation
of Seller arising out of any threatened or pending litigation, or any liability
or obligation under Seller's employee benefit plans, including medical
insurance, vacation, pension, profit sharing or stock purchase plans, or any
liability of Seller with respect to personal injury or property damage claims
arising prior to the Closing.
ARTICLE III
INSPECTION OF ASSETS AND REAL ESTATE VALUATION
3.1 VALUATION OF REAL ESTATE. Buyer has appointed Jon Hagan, and Seller
shall within two Business Days after the Signature Date appoint an appraiser,
each of whom is or will be either a California-certified or an MAI-certified
real estate appraiser, to act as initial appraisers in determining the fair
market value of Seller's leasehold interest in each parcel of Real Estate (the
"Initial Appraisers"). Each Initial Appraiser shall conduct an evaluation of
Seller's interest in each parcel of Real Estate and shall render his or her
written evaluation of the fair market value of such interest on or before the
21st calendar day after the Signature Date. In the event the higher of such
written opinions of fair market value, with respect to any parcel of Real Estate
is equal or less than of 115% of the lower, the two evaluations shall be added
together and divided by two and the resulting value shall be deemed to be the
fair market value of Seller's interest in such parcel of Real Estate. In the
event the higher of such written evaluations of fair market value is greater
than 115% of the lower, the Parties shall attempt to agree upon a fair market
value for Seller's interest in each parcel of Real Estate. If the Parties are
unable to agree upon the fair market value for any such interest within two
Business Days, the Initial Appraisers shall, on or before the 30th calendar day
after the Signature Date, jointly select a third independent MAI-certified
appraiser (the "Third Appraiser"), who shall conduct an evaluation of Seller's
interest in such parcel of Real Estate and render his or her determination as to
fair market value on or before the 60th calendar day after the Signature Date
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and whose determination in writing as to fair market value shall be final so
long as it is within the range of values determined by the Initial Appraisers.
In the event the determination of value of such interest by the Third Appraiser
is outside the range of values determined by the Initial Appraisers, the fair
market value determined by the Initial Appraiser whose evaluation is closer to
the value determined by the Third Appraiser shall be the fair market value of
such interest.
3.2 DUE DILIGENCE REVIEW, INVENTORY AND INSPECTION.
(a) Buyer shall be entitled to conduct due diligence as to the Real
Estate in accordance with the Assignment and Assumption Agreement.
(b) Attached hereto as Schedule 3.2(b) is a complete schedule of the
Fixed Assets and Account Loans, which schedule (i) identifies each item of Fixed
Assets with reasonable particularity, giving the Net Book Value of such item on
Seller's books and describing any Encumbrance thereon and (ii) identifies each
such Account Loan. Buyer and its agents and representatives shall be entitled to
conduct one or more walk through inspections of the Branches within the fifteen
(15) day period after the Signature Date. In the event that any of the Fixed
Assets as reported on the schedule is missing, malfunctioning or in a
significantly deteriorated condition (not including deterioration due to normal
wear and tear which does not render the asset nonusable), Buyer may elect to
exclude such property from the transfer under this Agreement, except for any
such property which is permanently affixed to the Real Estate. In the event that
Buyer shall not have objected in writing to the condition of the Branches by the
end of such fifteen-day period, Buyer shall be deemed to have accepted the
Branches. Such objection shall be exercised in good faith and shall be based, if
made, upon a material defect in the condition of the Branches. At the Closing,
Seller shall deliver to Buyer an updated schedule of Fixed Assets (exclusive of
any property excluded from the Fixed Assets pursuant to this Section 3.2) which
schedule Seller represents and warrants will be an accurate schedule of the
Fixed Assets of the Branches as of the Closing Date.
3.3 OTHER DOCUMENTS.
Schedule 3.3 consists of true and correct copies of the following
documents relating to the Branches:
(1) copies of any and all current leases, service and
maintenance contracts or other contracts or agreements including equipment
warranty agreements relating to the Branches or the Fixed Assets to which Seller
is a party, or by which the Branches or Fixed Assets are bound;
(2) copies of all written notices in Seller's possession
regarding the Branches, or the Assets or the Deposits, with respect to violation
of any statutes, rules or regulations of government agencies or violation of any
easements, covenants, conditions or restrictions affecting the Assets, the
Deposits or the real property; and
(3) a list of all Deposits which are subject to any
Encumbrances.
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ARTICLE IV
CLOSING
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4.1 CLOSING. The closing of the transactions contemplated by this
Agreement ("Closing") shall take place on March 24, 2000, or at such earlier or
later time and date as the Parties may fix in writing, at such location agreed
to by the parties, if all conditions set forth in Article 10 have been satisfied
or waived in writing on or before such date. The date the Closing is to be held
is referred to herein as the "Closing Date". The Closing shall be deemed to
occur at 11:59 P.M. Pacific Time on the Closing Date.
4.2 SETTLEMENT. The net amount of cash or other consideration to be
paid to Buyer by Seller pursuant to Section 2.3(c) less the amount owed Seller
by Buyer pursuant to Section 2.2 shall be netted with the amount due the
appropriate party under Section 2.3(d) to determine the closing payment due
Buyer from Seller as of the Closing (the "Closing Payment"). Because the parties
acknowledge that certain amounts to be paid may not be finally determinable
until after the Closing Date, the Closing Payment will be paid as follows:
(a) On the Closing Date, Seller will pay to Buyer by wire
transfer of immediately available funds no later than 12:00 noon on the Closing
Date to an account designated by Buyer, the Closing Payment (such Closing
Payment to be estimated based on account balances as of the close of business on
the third Business Day immediately prior to the Closing Date); and
(b) On the first Business Day after the Closing, Seller shall
provide Buyer with a closing settlement statement of the Closing Payment
calculated pursuant to this Section 4.2 to accurately reflect the Deposits, Net
Book Value for each Fixed Asset, the balance plus Accrued Interest of the
Account Loans and Cash on Hand, (and any prorations not reflected in the payment
made in the Closing Payment) all as of the Closing Date relating to the
Branches. Buyer or Seller, as appropriate, shall, on such date, pay to the other
party any amount payable (based upon the difference between the Closing Payment
calculated pursuant to subparagraph (a) above and calculated pursuant to this
subparagraph) by wire transfer in immediately available funds to an account
designated by the receiving party together with interest from the Closing Date
to the date of payment in full at the overnight Federal Funds rate in effect for
each such day, as published in the Wall Street Journal; provided, however, that
if such payment is made after three (3) Business Days from the first Business
Day after the Closing, then such amount shall bear interest calculated at the
average weighted cost of the Deposits transferred to Buyer pursuant to this
Agreement.
Unless otherwise specified in this Agreement, any amounts required to
be paid pursuant hereto which are not paid when required to be paid shall bear
interest from the due date until paid in full at the overnight Federal Funds
rate in effect for each day, as published in the Wall Street Journal (it being
understood that on days on which the Wall Street Journal is not published
interest shall accrue at the overnight Federal Funds rate in effect on the most
recent day on which the Wall Street Journal was published); provided, however,
that if such payment is made after three (3) Business Days from the due date,
then such amount shall bear interest calculated at the average weighted cost of
the Deposits transferred to Buyer pursuant to this Agreement. Any payment
pursuant to this Agreement sent after 12:00 noon shall be deemed to have been
made on the next Business Day. All references to hours of the day in this
Agreement shall be references to California time.
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4.3 POST-CLOSING ADJUSTMENTS. Except as otherwise expressly
provided in this Agreement, the Parties shall cooperate in the prompt
determination of adjustments, payments or reimbursements contemplated hereby in
connection with the Closing and within forty-five (45) days after the Closing
shall settle such amounts in a manner consistent with the express terms of this
Agreement.
4.4 DELIVERIES AT CLOSING. At the Closing, Seller shall
deliver to Buyer the documents as set forth in Section 10.1(e), and Buyer shall
deliver to Seller the documents as set forth in Section 10.2(e).
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
Buyer represents and warrants to Seller the following:
5.1 ORGANIZATION. Buyer is a federally chartered savings bank, duly
organized, validly existing and in good standing under the laws of the United
States of America.
5.2 AUTHORITY. Buyer has the corporate power and authority to execute,
deliver and perform this Agreement and has secured all necessary corporate
consents and approvals in connection with the execution of this Agreement and
the consummation of the transactions contemplated hereby, subject to obtaining
regulatory approval. Upon execution and delivery, this Agreement will constitute
a valid and binding obligation of Buyer enforceable against it in accordance
with its terms, subject to applicable bankruptcy, insolvency, receivership, and
similar laws affecting creditors' rights generally and laws relating to the
rights of creditors of federally insured financial institutions, and, as to
enforceability, to general principles of equity (whether enforcement is sought
in a proceeding in equity or at law).
5.3 COMPLIANCE WITH OTHER INSTRUMENTS AND LAW. Buyer holds all
licenses, franchises, permits and authorizations necessary for the lawful
conduct of its business, and has not materially violated, and is not in material
violation of, any applicable statutes, laws, ordinances, rules and regulations
of all federal, state and local governmental bodies, agencies and subdivisions
having, asserting or claiming jurisdiction over it, where such violation would
have a material adverse effect upon its ability to enter into and perform its
obligations under this Agreement.
5.4 NO BREACH. The execution, delivery and performance of this
Agreement by Buyer and the consummation of the transaction contemplated hereby
will not violate or cause a breach of or constitute a default under any
judgment, injunction, order, decree, material agreement or material instrument
binding upon Buyer. The execution, delivery and performance of this Agreement by
Buyer and the consummation of the transactions contemplated hereby will not
violate its charter or by-laws or, upon receipt of all required regulatory
approvals, any law or regulation applicable to it.
5.5 LITIGATION. There is no action, suit or proceeding pending against
Buyer or to Buyer's knowledge threatened against or affecting Buyer before any
court or arbitrator or any governmental body, agency or official which could
materially adversely affect the ability of Buyer to perform its obligations
under this Agreement.
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5.6 GOVERNMENTAL NOTICES. Buyer has no reason to believe that any
federal, state or other governmental agency having jurisdiction to approve or
consent to the transaction would oppose or not grant or issue its consent or
approval, if required, with respect to the transactions contemplated hereby.
5.7 REGULATORY APPROVALS. The information furnished or to be furnished
by Buyer pursuant to Section 8.1 of this Agreement for the purpose of filing any
regulatory application and/or notice is or will be true and complete in all
material respects as of the date so furnished.
5.8 CONSENTS. Other than the approval of the OTS, no consent, approval
or authorization of any governmental authority or agency is required for the
execution, delivery and performance by Buyer of this Agreement and the
consummation by it of any transactions contemplated hereby.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF SELLER
----------------------------------------
Seller represents and warrants to Buyer the following:
6.1 ORGANIZATION. Seller is a federally chartered savings bank duly
organized, validly existing and in good standing under the laws of the United
States of America.
6.2 AUTHORITY. Seller has the corporate power and authority to execute,
deliver and perform this Agreement and has secured all necessary corporate
consents and approvals in connection with the execution of this Agreement and
the consummation of the transactions contemplated hereby subject to obtaining
regulatory approval and necessary Landlord consents. Upon execution and
delivery, this Agreement will constitute a valid and binding obligation of
Seller enforceable against it in accordance with its terms, subject to
applicable bankruptcy, insolvency, receivership, and similar laws affecting
creditors' rights generally, and the rights of creditors of federally insured
financial institutions, and to general principles of equity (whether enforcement
is sought in a proceeding in equity or at law). The Deposits are insured by the
FDIC up to the current applicable maximum limits and Seller has received no
written notice of any action pending or threatened by the FDIC with respect to
termination of such insurance.
6.3 COMPLIANCE WITH OTHER INSTRUMENTS AND LAW. Seller holds all
licenses, franchises, permits and authorizations necessary for the lawful
conduct of its business, and has not materially violated, and is not in material
violation of, any applicable statutes, laws, ordinances, rules and regulations
of all federal, state and local governmental bodies, agencies and subdivisions
having, asserting or claiming jurisdiction over it where such violation would
have a material adverse effect upon its ability to enter into and perform its
obligations under this Agreement.
6.4 NO BREACH. Subject to receipt of Landlord consents, the execution,
delivery and performance of this Agreement by Seller and the consummation of the
transaction contemplated hereby will not violate or cause a breach of or
constitute a default under any judgment, injunction, order, decree, material
agreement or material instrument binding upon Seller. The execution and
performance of this Agreement by Seller and the consummation of the transactions
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contemplated hereby will not violate its charter or by-laws or, upon receipt of
all required regulatory approvals, any law or regulation applicable to it.
6.5 LITIGATION. There is no action, suit or proceeding pending against
Seller or to Seller's Knowledge threatened against or affecting Seller, before
any court or arbitrator or any governmental body, agency or official which could
materially adversely affect the aggregate value of the Deposits or the Assets,
or the ability of Seller to perform its obligations under this Agreement.
6.6 TITLE TO ASSETS. With respect to Assets other than Real Estate,
Seller is the lawful owner of and has good and marketable title to the Assets,
free and clear of all Encumbrances.1 Delivery to Buyer of the instruments of
transfer of ownership contemplated by this Agreement will vest in Buyer all
right, title and interest of the Seller in and to the Assets.
6.7 TIN CERTIFICATION. Seller has complied in all material respects
with all applicable tax laws relating to obtaining and, if appropriate,
correcting taxpayer identification numbers ("TINs"), including the use of due
diligence and/or reasonable cause as defined for purposes of the Internal
Revenue Code, relating to TIN compliance with respect to holders of the
Deposits. Seller has received no notice of any pending or proposed penalties for
TIN noncompliance in connection with the Accounts.
6.8 ACCOUNT LOAN ENFORCEABILITY. All Account Loans transferred to Buyer
pursuant to the terms of this Agreement are valid and enforceable subject to
applicable bankruptcy, insolvency, receivership, and similar laws affecting
creditors' rights generally, and, as to enforceability, to general principles of
equity (whether enforcement is sought in a proceeding in equity or at law).
6.9 SAFE DEPOSIT BOXES. The Safe Deposit Boxes do not hold contents
subject to escheatment as of the Closing Date.
6.10 INSURANCE. All insurance policies maintained by Seller and
applicable to the Branches are in full force and effect as described on Schedule
6.10.
6.11 TAXES. All payroll, withholding, property, excise, sales, use and
transfer taxes imposed by the United States or by any state, municipality,
subdivision or instrumentality of the United States or by any other taxing
authority which are due and payable by Seller prior to the Closing relating to
the Branches as of the Closing Date have been paid in full, or will be so paid
prior to, or prorated at, the Closing except to the extent contested by Seller
in good faith through appropriate proceedings.
6.12 RECORDS. To Seller's Knowledge, the Records are originals of, or
true and correct copies of, records created and maintained during the ordinary
course of business by Seller at the Branches.
6.13 SERVICE AND MAINTENANCE CONTRACTS. There are no contracts or other
agreements relating to the rendering by third parties of services to the
Branches other than those which shall be delivered to Buyer pursuant to Section
3.3 hereof.
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6.14 REGULATORY APPROVALS. The information furnished or to be furnished
by Seller pursuant to Section 8.1 of this Agreement for the purpose of enabling
Buyer to complete and file an application with the OTS is or will be true and
complete in all material respects as of the date so furnished.
6.15 CONSENTS. Other than the approval of the OTS, and any Landlord
consents, no consent, approval or authorization of any governmental authority or
agency is required for the execution, delivery and performance by Seller of this
Agreement and the consummation by it of any transactions contemplated hereby.
6.16 OPERATION. To Seller's Knowledge, the current use and operation of
the Branches are in compliance with and authorized by zoning and other land use
regulations applicable at the time of completion of construction, including
without limitation building, fire, health and safety codes and all private
covenants, restrictions and easements except to the extent that any
non-compliance would not have a material adverse effect on the Branches. To
Seller's Knowledge, there are no facts or circumstances existing or threatened
which could have a material adverse effect on the present or future use of the
Branches as a bank office, except as described on Schedule 6.16 attached hereto.
Except for (i) matters of public record; (ii) the Branch Leases, (iii)
agreements referenced in Section 6.13, and (iv) agreements necessary or
desirable to consummate the transactions contemplated hereby, Seller is not a
party to any other material agreement relating to the Branches except as
described on Schedule 6.16 attached hereto.
6.17 CONDEMNATION. Seller has not received notice of any pending or
threatened proceeding in eminent domain or otherwise, which would affect the
Branches, or any portion thereof. To Seller's Knowledge there are no existing,
proposed or contemplated plans to widen, modify or realign any street or highway
contiguous to the Branches, except as described on Schedule 6.17 attached
hereto. To Seller's Knowledge, except as shown on the real property public
records or on tax bills, there are no intended public improvements which will
result in any charge being levied or assessed against, or in the creation of any
Encumbrance upon, the Branches.
6.18 HAZARDOUS SUBSTANCES. Seller represents and warrants that to
Seller's Knowledge, except as described on Schedule 6.18: (i) except for the use
and storage of office supplies in the ordinary course of business, no Hazardous
Substances are or have been present, stored, disposed of, or released in or at
the Branches in violation of Environmental Laws; (ii) to Seller's Knowledge, no
Hazardous Substances are or have been present, stored, disposed of or released
above or below the Branches by Seller in violation of Environmental Laws; (ii)
Seller has not received any written communication from a governmental authority
that alleges a violation of Environmental Laws concerning the Branches that has
not been cured; and (iii) Seller has received no notice of any claim, action,
cause of action, investigation, or communication asserted by a person alleging
potential liability arising out of or based on or resulting from the presence,
storage, disposition or release of any Hazardous Substance at, above, or below
the Branches or the violation or alleged violation of any Environmental Law
concerning the Branches.
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ARTICLE VII
COVENANTS OF BUYER
------------------
7.1 ASSISTANCE IN OBTAINING REGULATORY APPROVALS. Buyer shall be
responsible for the preparation and filing of the applications and notices for
approval of the transaction contemplated herein with the OTS except for any
application under Section 563.22 of the OTS Regulations ("transfer application")
which may be required of Seller. Buyer shall cooperate with Seller in providing
information for the OTS application. Buyer will be solely responsible for all
fees, expenses and costs incurred with respect to the preparation and filing of
the applications and notices with the OTS other than Seller's transfer
application, if any. Notwithstanding the previous sentence, each Party shall pay
any required filing fee for any application required to be filed under
applicable law by such Party, and such Party's own attorneys' and consultant
fees incurred in connection with such filing.
7.2 PERFORMANCE OF LIABILITIES. Subject to Seller's compliance with
Section 13.6 from and after the Closing, Buyer agrees to pay (to the extent
there are sufficient available funds on deposit) all properly drawn checks,
drafts and negotiable withdrawal orders drawn against a Deposit account
transferred by Seller to Buyer as contemplated herein, timely presented to Buyer
by mail, over its counters or through inclearings and whether drawn on the check
or draft forms provided by Seller for ninety (90) days after the Closing Date.
7.3 CONSENTS AND NOTICES. Buyer: (i) will use commercially reasonable
efforts to obtain prior to the Closing Date all consents, approvals or
authorizations required to be obtained by it for the consummation of the
transaction contemplated hereby; and (ii) will publish all notices required by
all governmental authorities or agencies required for the execution, delivery
and performance by Buyer of this Agreement and the consummation by it of any
transaction contemplated hereby.
7.4 FURTHER ASSURANCES. On and after the Closing Date, Buyer shall give
such further assurances to Seller and upon Seller's request shall execute,
acknowledge and deliver all such acknowledgments and other instruments and take
such further action as may be reasonably necessary and appropriate to
effectively relieve and discharge Seller from any obligations remaining under
the Liabilities transferred to Buyer and to confirm the assumption of the
Liabilities by Buyer; provided, however, that Buyer need not incur any material
costs or expenses in connection with the undertakings contained in this sentence
unless such costs or expenses are paid by Seller.
7.5 CONFIDENTIALITY. Buyer shall hold, and shall cause its respective
directors, officers, employees, agents, consultants and advisors to hold, in
strict confidence, unless disclosure to a bank regulatory authority is necessary
in connection with any regulatory approval or unless compelled to disclose by
judicial or administrative process or, in the written opinion of its counsel, by
other requirements of law or the applicable requirements of any regulatory
agency or relevant stock exchange, all records, books, contracts, instruments,
computer data and other data and information (collectively, "Information")
concerning Seller furnished it by Seller or its representatives pursuant to this
Agreement (except to the extent that such information can be shown to have been
(a) previously known by Buyer on a non-confidential basis, (b) in the public
domain through no fault of Buyer or (c) later lawfully acquired from other
sources by Buyer) and shall not release or disclose such Information to any
other person, except its auditors, attorneys, financial advisors, bankers, other
consultants and advisors and, to the extent permitted above, to bank regulatory
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authorities. The obligations of Buyer in the preceding sentence shall terminate
upon the Closing with respect to information relating to the Branches. In the
event of termination of the transactions contemplated in this Agreement prior to
Closing, Buyer shall return to Seller all such records, books, contracts,
instruments, computer data and other data or information and all copies thereof
in its possession or the possession of third parties subject to its direction,
and shall certify in writing as to the foregoing.
ARTICLE VIII
COVENANTS OF SELLER
-------------------
8.1 ASSISTANCE IN OBTAINING REGULATORY APPROVALS. Seller shall be
responsible for the preparation and filing and for all fees, expenses and costs
incurred in the preparation and filing of, any transfer application it may be
required to file. Seller shall cooperate with Buyer in providing information for
the Buyer's applications to the OTS.
8.2 CONSENTS AND NOTICES. Seller: (i) will use commercially reasonable
efforts to obtain prior to the Closing Date all consents, approvals or
authorizations required to be obtained by it for the consummation of the
transactions contemplated hereby; and (ii) will publish and issue all notices
required by all governmental authorities or agencies required for the execution,
delivery and performance by Seller of this Agreement and the consummation by it
of any transactions contemplated hereby.
8.3 ACCESS TO RECORDS AND INFORMATION; PERSONNEL; CUSTOMERS.
(a) Between the Signature Date and the Closing Date, Seller
shall afford to Buyer and its authorized agents and representatives access,
during normal business hours or if mutually agreed by the Parties, at other
times, to the operations, books, records, contracts, documents and other
information of or relating to the Deposits and Assets to be transferred to Buyer
as contemplated herein, and, as to the Real Estate, subject to the access
requirements contained in the applicable Assignment and Assumption Agreement,
and shall provide Buyer a true copy of the form of all contracts, agreements,
and other documents governing or specifying the terms of the relationship
between Seller and its customers at the Branches. Buyer shall give reasonable
notice for access to Seller. The date and time of such access will then be
mutually agreed upon by both Parties. Seller shall cause its personnel to
provide assistance to Buyer in Buyer's investigation of matters relating to such
Deposits, Account Loans, Assets and Safe Deposit Boxes; provided, however, that
Buyer's investigation shall be conducted in a manner which does not unreasonably
interfere with Seller's normal operations, customers and employee relations; and
provided further, that Buyer and its authorized agents and representatives shall
be afforded physical access to the Branches over the weekend immediately prior
to the Closing Date.
(b) Buyer, with Seller's prior written consent, which shall
not unreasonably be withheld, may, at its own expense, upon regulatory approval
of the transaction contemplated by this Agreement, communicate with, and deliver
information, brochures, bulletins, press releases and other communications to
depositors of the Branches concerning such transaction and concerning the
business and operations of Buyer.
8.4 CONDUCT OF BUSINESS PENDING CLOSING. Except as may be required to
obtain the regulatory approvals referred to in Section 8.1 hereof, between the
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Signature Date and the Closing Date, and except as may otherwise be required by
a regulatory authority, Seller shall conduct its business at the Branches in the
ordinary course consistent with past practice and shall not, without the prior
consent of Buyer, which consent shall not be unreasonably withheld:
(a) Cause the Branches to engage or participate in any
activity that would materially and adversely affect the Deposits, Account Loans,
Assets or Safe Deposit Boxes or the ability to continue the operations of the
Branches, except in the ordinary course of business;
(b) Cause the Branches to transfer to Seller's other branches
any Deposits to be transferred to Buyer as contemplated herein, except upon the
unsolicited request of a depositor in the ordinary course of business;
(c) Increase or agree to increase the salary, remuneration or
compensation of persons employed at the Branches other than in accordance with
Seller's customary policies and/or bank-wide changes provided prior or
subsequent notice is given to Buyer of such bank-wide changes, or pay or agree
to pay any bonus not committed or contemplated prior to the date of this
Agreement to any such Employees other than regular bonuses granted based on
historical practice or in connection with the retention bonus program instituted
by Seller in contemplation of the transactions described herein;
(d) Enter into any commitment, agreement, understanding or
other arrangement to dispose of the Assets and Liabilities to be transferred to
Buyer as contemplated herein, other than pursuant to the terms of this
Agreement;
(e) Invest in, or dispose of, any Fixed Assets of the
Branches, except pursuant to commitments made on or before the Signature Date
and disclosed to Buyer in writing on or before the Signature Date and for
replacements of destroyed or damaged furniture, furnishings and equipment or
replacements of furniture, furnishings and equipment the failure to replace of
which would constitute a safety or health hazard;
(f) Cause or permit the Branches to transfer to Seller's other
operations or branches any Account Loans or Fixed Assets of the Branches;
(g) Transfer, assign, permit any Encumbrance to exist with
respect to or otherwise dispose of, or enter into any contract, agreement or
understanding to transfer, assign, cause or permit any Encumbrance to exist
(which Encumbrance would not be permitted under Section 6.6) with respect to or
otherwise dispose of, any of the Assets except in the ordinary course of
business and subject to the other provisions of this Section 8.4;
(h) Make any material change in any of Seller's basic policies
and practices with respect to deposit origination, personnel practices,
marketing, or any other material aspect of its business or operations which
would have a material adverse effect on the Branches or the Mortgage Loans,
except as may be required by applicable governmental authorities and except for
changes in such policies instituted on a bank-wide basis.
(i) Directly or indirectly, entertain, solicit or encourage or
participate in any discussions or negotiations with, or provide any information
(other than publicly available information) to, any person or other entity or
group (other than Buyer and its representatives) concerning any proposal to
acquire the Assets or assume the Liabilities which are the subject of this
Agreement, except under circumstances where Seller advises such person, entity
or group that it is obligated to sell the Assets and transfer the liabilities to
Buyer and that any other such proposal shall be considered only as a backup
proposal.
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8.5 BOOKS AND RECORDS. Seller shall retain (i) all books and records
relating to the Branches which are not ordinarily maintained at the Branches
through the Closing Date and all records of closed accounts, except books and
records from centralized servicing areas (including, e.g., W-8 and W-9
Certifications), and (ii) all transaction documents related to the Deposits. On
the Closing Date, Buyer shall receive possession of, and all of Seller's right,
title and interest to and in, the Records. All transaction documents, books and
records which are retained by Seller after the Closing Date and which relate
directly to transactions involving Assets and Deposits of the Branches occurring
prior to the Closing Date shall (i) be maintained for a period which is at least
the longer of the period required by law or the normal retention period under
Seller's record retention program, unless the Parties shall, applicable law
permitting, agree upon a shorter period; and (ii) even if such transaction
documents, books and records are relocated to third-party long-term storage
facilities or transferred to microfilm or other media in accordance with
Seller's normal practices, shall upon Buyer's request pursuant to a customer's
reasonable inquiry, promptly be made available to Buyer at no cost. For any
other purpose, unless the Parties agree to another arrangement, Seller shall
provide such transaction documents, books and records as Buyer may deem
desirable at Seller's regular customer service charge for research and copying,
except if such purpose is reasonably necessary to permit Buyer to comply with or
contest any applicable legal, tax, banking, accounting or regulatory policies,
requirements or proceedings, arising out of the obligations of Seller prior to
Closing, in which case no charge shall be made.
8.6 INSURANCE POLICIES. Seller will maintain in effect until the
Closing all insurance policies set forth in Schedule 6.10 attached hereto or
replacement policies providing coverage at least equal to their current
coverage.
8.7 FURTHER ASSURANCES. On and after the Closing Date, Seller shall (i)
give such reasonable further assurances to Buyer and upon Buyer's request shall
execute, acknowledge and deliver all such acknowledgments and other instruments
and take such reasonable further action as may be necessary and appropriate to
effectively relieve and discharge Buyer from any obligations remaining under the
Deposits transferred to Buyer, except obligations assumed under this Agreement;
and (ii) give such further assistance to Buyer and shall execute, acknowledge
and deliver all such bills of sale, acknowledgments and other instruments and
take such further action as may be necessary and appropriate effectively to vest
in Buyer full, legal and equitable title to the Assets transferred to Buyer;
provided, however, that Seller need not incur any material costs or expenses in
connection with the undertakings contained in this sentence unless such costs or
expenses are paid by Buyer. In particular, and without limiting the foregoing:
(a) After the Closing Date, Seller will mail to Buyer within
one Business Day after receipt thereof by Seller all payments relating to
Account Loans or amounts intended for deposit to the accounts which are part of
the Deposits transferred to Buyer or otherwise relating to such Deposits or
Account Loans;
(b) Except as provided to the contrary in the interim
processing procedures, with respect to checks or drafts against accounts which
are Deposits transferred to Buyer, Seller and Buyer will cooperate with one
another such that on and after the Closing Date, each such item which is coded
for presentment to Seller or to any bank for the account of Seller, is delivered
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to Buyer in a timely manner and in accordance with Section 13.6, applicable law
and Clearing House rules or agreement;
(c) Except as otherwise contemplated by this Agreement, or the
interim processing procedures, Seller will remove any supply of money orders,
traveler's checks and other forms and papers (other than Records) located at the
Branches not later than the close of business on the Closing Date; and
(d) Not later than 2:00 p.m. on the later to occur of the
Closing Date or the Conversion Date, Seller will void all ATM access cards
issued by it to customers of the Branches except for customers that are also
customers of other branches of Seller
(e) [On or before twenty-one days after the later to occur of
the Closing Date or the Conversion Date, Seller will provide to Buyer a
transaction history report in mutually acceptable form with respect to the
Deposits, covering the third and fourth quarter of 1999 and the period of time
from the beginning of 2000 to the Conversion Date.
8.8 CONSENTS. Seller shall secure all necessary corporate consents,
shall use commercially reasonable efforts to secure all consents and releases
required of third parties (except those regarding Buyer) and shall comply with
all applicable laws, regulations and rulings in connection with this Agreement
and the consummation of the transactions contemplated hereby.
8.9 OPERATION OF BRANCHES. From and after the date of this Agreement
until the Closing Date, subject to Section 8.4 of this Agreement, Seller shall
operate and manage the Branches in the normal and ordinary course and in
accordance in all material respects with all applicable federal, state and local
laws, ordinances and requirements and private covenants, conditions,
restrictions and other agreements, and maintain the Branches in good order,
condition and repair in all material respects. Seller shall punctually pay and
perform all of its obligations under the Branch Leases and related service
contracts, and pay before delinquency all taxes, assessments, utility charges
and other expenses affecting the Branches except to the extent contested in good
faith by appropriate proceedings provided prior or subsequent notice is provided
to Buyer. After the Signature Date, Seller shall use commercially reasonable
efforts to retain at the Branches the Deposits which are domiciled at the
Branches as of the date of this Agreement.
8.10 SERVICE AND MAINTENANCE CONTRACTS. Seller shall, if requested by
Buyer, use commercially reasonable efforts to continue to make such services and
benefits of any service and maintenance contracts available to Buyer and in such
event, Buyer shall pay at the contract rate for any desired services to be
rendered to it after the Closing Date pursuant to any existing contract between
Seller and third parties. Seller has provided Buyer with copies of all service
and maintenance contracts related to the Branches which are outstanding as of
the Closing Date. With respect to any such contracts, Buyer shall, not later
than thirty (30) days after the Signature Date, notify Seller of those contracts
which it elects to assume (to the extent permitted by the relevant contract and
law), and Seller shall assign all of its right, title and interest in such
contracts so assumed to Buyer at the Closing pursuant to documents and
agreements in form and substance reasonably satisfactory to Buyer.
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8.11 SIGNS. Buyer shall, at its own cost, remove all exterior and
interior signs identifying Seller at the Branches and restore exterior surfaces.
The parties shall cooperate with each other's efforts with respect to the
foregoing to the extent reasonable.
8.12 MATERIAL CHANGES. Seller shall advise Buyer promptly in writing of
any material adverse change in the business or operations of Seller relating to
the Branches which becomes known to Seller, or of any matter which would make
the representations and warranties set forth in Article VI hereof not true and
correct at any time up to and including the Closing Date.
8.13 CONFIDENTIALITY. Seller shall hold, and shall cause its respective
directors, officers, employees, agents, consultants and advisors to hold, in
strict confidence, unless disclosure to a bank regulatory authority is necessary
in connection with any regulatory approval or unless compelled to disclose by
judicial or administrative process or, in the written opinion of its counsel, by
other requirements of law or the applicable requirements of any regulatory
agency or relevant stock exchange, all records, books, contracts, instruments,
computer data and other data and information (collectively, "Information")
concerning Seller furnished it by Seller or its representatives pursuant to this
Agreement (except to the extent that such information can be shown to have been
(a) previously known by Seller on a non-confidential basis, (b) in the public
domain through no fault of Seller or (c) later lawfully acquired from other
sources by Seller) and shall not release or disclose such Information to any
other person, except its auditors, attorneys, financial advisors, bankers, other
consultants and advisors and, to the extent permitted above, to bank regulatory
authorities. The obligations of Seller in the preceding sentence shall terminate
upon the Closing with respect to information relating to the Branches. In the
event of termination of the transactions contemplated in this Agreement prior to
Closing, Seller shall return to Seller all such records, books, contracts,
instruments, computer data and other data or information and all copies thereof
in its possession or the possession of third parties subject to its direction,
and shall certify in writing as to the foregoing.
8.14 REPURCHASE OF CERTAIN ACCOUNT LOANS AND DEPOSITS. Seller agrees,
on the first Business Day following the date which is thirty (30) days following
Closing, to repurchase from Buyer: (a) any Account Loan and to reassume any
obligations under any associated Deposit which (i) at Closing, was listed on the
Schedule of Delinquent Account Loans and (ii) on the date which is thirty (30)
days following Closing, remained delinquent, and (b) any Deposit and to reassume
any obligations under such associated Deposit which (i) at Closing, was a
Negative Balance Deposit and (ii) on the date which is thirty (30) days
following Closing, remained a Negative Balance Deposit, for a repurchase price
equal to the negative balance of such Deposit on the Closing Date. For purposes
of the foregoing sentence, an Account Loan shall be considered delinquent if
such loan is more than thirty (30) days past due at the applicable time.2 Seller
and Buyer shall cooperate in the repurchase of such Account Loans and Deposits
and the reassumption of obligations under such Account Loans and Deposits.
ARTICLE IX
NON-COMPETITION
---------------
9.1 SOLICITATION. For a period of twelve (12) months following the
Closing Date, Seller will not, directly or indirectly, knowingly solicit
deposits by the use of direct mail, telemarketing programs or other similar
marketing methods specifically directed at people within a one (1.0) mile radius
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of the Branches or at customers of the Branches. Notwithstanding the previous
sentence, this Section (Section 9.1) shall not limit the right of Seller to
solicit customers through a general marketing program not targeted to customers
of the Branches or to solicit customers who are also customers of other
operations or branches of Seller or are customers with respect to nondeposit
investment products administered by Seller or an affiliate thereof.
9.2 NON-COMPETITION. For a period of twelve (12) months following the
Closing Date, Seller shall not, directly or indirectly, without the prior
written consent of Buyer, own, operate or purchase an office of a savings and
loan association, commercial bank, savings bank or depositary institution within
a one (1.0) mile radius of any of the Branches. This Section 9.2 shall not
prohibit Seller from acquiring a branch or branches within such radius when such
acquisition is part of a multi-branch purchase from, or a merger with, another
financial institution.
ARTICLE X
CONDITIONS TO CLOSING
---------------------
10.1 CONDITIONS TO THE OBLIGATIONS OF BUYER. Unless waived in writing
by Buyer, the obligations of Buyer to consummate the transaction contemplated by
this Agreement are subject to the satisfaction at or prior to the Closing of the
following conditions:
(a) PERFORMANCE. Each of the acts and undertakings of Seller
to be performed at or before the Closing Date pursuant to this Agreement shall
have been duly performed in all material respects.
(b) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Seller contained in Article 6 of this Agreement shall be true and
complete on and as of the Closing Date with the same effect as though made on
and as of the Closing Date.
(c) ABSENCE OF PROCEEDINGS AND LITIGATION. No order shall have
been entered and remain in force at the Closing Date restraining or prohibiting
any of the transactions contemplated by this Agreement in any legal,
administrative or other proceeding and no action or proceeding shall have been
instituted or threatened on or before the Closing Date pertaining to the
transactions contemplated by this Agreement which, in the reasonable judgment of
Buyer, could be materially adverse to Buyer's consummating this Agreement.
(d) REGULATORY APPROVALS. All required licenses, approvals and
consents of any relevant state, federal or other regulatory agencies shall have
been obtained and all necessary conditions to those licenses, approvals and
consents shall have been fully satisfied; provided, however, that if any such
licenses, approvals or consents are qualified or conditioned in any manner which
materially and adversely affects the operations of the Branches as a branch of
Buyer, this condition may be deemed unfulfilled.
(e) DOCUMENTS. In addition to the documents described
elsewhere in this Section 10.1, Buyer shall have received the following
documents from Seller duly executed:
(1) A General Bill of Sale and Assignment and Assumption
substantially in the form of Exhibit B hereto.
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(2) A Retirement Accounts Transfer Agreement
substantially in the form of Exhibit D hereto.
(3) A certificate of the Secretary or Assistant Secretary
of Seller as to the incumbency and signatures of officers.
(4) Such other bills of sale and other instruments and
documents as counsel for Buyer may reasonably require as necessary or desirable
for transferring, assigning and conveying to Buyer good, marketable and
insurable title to the Assets to be transferred to Buyer as contemplated herein,
all in form and substance reasonably satisfactory to counsel for Buyer.
(5) A certificate signed by duly authorized officers of
Seller stating that the representations and warranties of Seller under Article 6
of this Agreement are true as of the Closing Date, that the respective covenants
of Seller to be performed on or before the Closing Date have been performed in
all material respects, and that the conditions set forth in this Section 10.1
have been satisfied.
(6) Resolutions of Seller's Board of Directors, certified
by its Secretary or Assistant Secretary, authorizing the signing and delivery of
this Agreement and the consummation of the transactions contemplated hereby.
(7) A computer printout and data tape of Deposits being
transferred to Buyer.
(8) A list of holds pursuant to Section 13.7.
(9) A copy of the form of the notice Seller sent to its
customers in accordance with Section 13.1, and the final customer list
contemplated by Section 13.1.
(10) The Records relating to the Branches.
(11) The conveyance and assignment documents pursuant to
the Assignment and Assumption Agreement.
(12) A Schedule of Delinquent Account Loans and
Associated Deposits.
(13) Such other documents or instruments as Buyer may
reasonably request in connection with the performance by Seller of any of its
obligations hereunder.
(f) ASSIGNMENT OF LEASES. All conditions precedent to the
obligations of Buyer under the Assignment and Assumption Agreement shall have
been satisfied, and the transactions described in the Assignment and Assumption
Agreement shall close concurrently herewith.
(g) NO MATERIAL ADVERSE CHANGE. No material adverse change
shall have occurred affecting (i) the Branches or (ii) the ability to conduct
operations at the Branches.
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(h) REIMBURSEMENT. Buyer shall have received payment pursuant
to Section 2.3(c); which, if Seller has made the election specified in Section
2.3(f) shall include the transfer of all residential mortgage loans under the
Mortgage Loan Purchase and Sale Agreement.
10.2 CONDITIONS TO THE OBLIGATIONS OF SELLER. Unless waived in writing
by Seller, the obligations of Seller to consummate the transaction contemplated
by this Agreement are subject to the satisfaction at or prior to the Closing of
the following conditions:
(a) PERFORMANCE. Each of the acts and undertakings of Buyer to
be performed at or before the Closing Date pursuant to this Agreement shall have
been duly performed in all material respects.
(b) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Buyer contained in Article 5 of this Agreement shall be true and
complete on and as of the Closing Date with the same effect as though made on
and as of the Closing Date.
(c) ABSENCE OF PROCEEDINGS AND LITIGATION. No order shall have
been entered and remain in force at the Closing Date restraining or prohibiting
any of the transactions contemplated by this Agreement in any legal,
administrative or other proceeding and no action or proceeding shall have been
instituted or threatened on or before the Closing Date pertaining to the
transaction contemplated by this Agreement which, in the reasonable judgment of
Seller, could be materially adverse to Seller's consummating this Agreement.
(d) REGULATORY APPROVAL. All required licenses, approvals and
consents of any relevant state, federal or other regulatory agencies shall have
been obtained and all necessary conditions to those licenses, approvals and
consents shall have been fully satisfied.
(e) DOCUMENTS. In addition to the documents described
elsewhere in this Section 10.2, Seller shall have received the following
documents from Buyer duly executed:
(1) A General Bill of Sale and Assignment and Assumption
substantially in the form of Exhibit B hereto.
(2) An Assumption of Deposit Liabilities substantially in
the form of Exhibit C hereto.
(3) A Retirement Accounts Transfer Agreement
substantially in the form of Exhibit D hereto.
(4) A certificate of the Secretary or Assistant Secretary
of Buyer as to the incumbency and signatures of officers.
(5) A certificate signed by duly authorized officers of
Buyer stating that the representations and warranties of Buyer under Article 5
of this Agreement are true as of the Closing Date, and that the respective
covenants of Buyer to be performed on or before the Closing Date have been
performed in all material respects, and that the conditions set forth in this
Section 10.2 have been satisfied.
(6) Such other documents or instruments as Seller may
reasonably request in connection with the performance by Buyer of any of its
obligations hereunder.
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(7) Resolutions of Buyer's Board of Directors, certified
by its Secretary or Assistant Secretary, authorizing the signing and delivery of
this Agreement and the consummation of the transactions contemplated hereby.
(f) ASSIGNMENT OF LEASES. All conditions precedent to the
obligations of the Seller under the Assignment and Assumption Agreement shall
have been satisfied, and all transactions contemplated under the Assignment and
Assumption Agreement shall be consummated concurrently herewith.
ARTICLE XI
TERMINATION
-----------
11.1 CONDITIONS FOR TERMINATION. This Agreement shall terminate and be
of no further force and effect as between the Parties hereto, upon the
occurrence of any of the following:
(a) By either Party upon the expiration of fifteen (15) days
after the refusal or denial of any approval or consent by any governmental
agency of any approvals or consent required to be obtained pursuant to this
Agreement, or the imposition of a materially burdensome condition upon such
Party in connection with such approval or consent by any such governmental
agency, unless, within such fifteen (15) day period, the relevant Party
resubmits the application, or appeals the decision of the governmental entity
that has denied or refused to grant such consent or approval or has imposed such
condition and, in such event, by either Party upon the expiration of five (5)
days after the denial or refusal by such governmental agency of such appeal or
resubmitted application.
(b) By a Party upon the expiration of five (5) Business Days
from the date that such Party has given written notice to the other Party of
such other Party's material breach or material misrepresentation of any
condition, warranty, representation or covenant in this Agreement or the
Assignment and Assumption Agreement; or the termination of the Assignment and
Assumption Agreement; provided, however, that no such termination shall take
effect if within such five (5) day period the Party so notified shall have fully
and completely corrected the grounds for termination as specified in such
notice.
(c) Upon the failure to consummate the transaction by July 31,
2000 unless extended by mutual agreement in writing of the Parties.
(d) Upon mutual consent of the Parties to terminate.
Notwithstanding anything to the contrary herein contained in this Agreement, no
Party shall have the right to terminate this Agreement on account of its own
breach or any immaterial breach by the other Party.
11.2 EFFECT OF TERMINATION. Termination of this Agreement pursuant to
Section 11.1 or for any reason or in any manner shall not release, or be
construed to release, any Party hereto from liability or damage to any other
Party arising out of, in connection with, or otherwise relating to, directly or
indirectly, such Party's material breach, default or failure in performance of
any material covenants, agreements, duties or obligations arising hereunder.
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ARTICLE XII
EMPLOYEES
---------
12.1 EMPLOYEES. Buyer shall use reasonable efforts to make employment
available to all employees of Seller at the Branches. Buyer shall be required to
meet with the Employees employed at Seller's Branch no later than seven (7) days
after the transaction is communicated by the Seller to the Employees. Seller
agrees to give Buyer access to personnel files concerning each of the Employees
employed at the Branches within seven (7) days of receiving such Employee's
written consent for such release. Seller shall use commercially reasonable
efforts to obtain such consent from each of its Employees as soon as practicable
after the initial meeting with Employees employed at the Branches. Employees who
are offered employment shall be hired on terms and conditions as are consistent
with the terms and conditions of similar employment positions of Buyer,
effective the day immediately following the Closing Date. Buyer shall make
offers of employment promptly after the receipt from Seller of records referred
to above. Any such Employee shall be given five (5) Business Days from the date
of such offer to accept or decline the employment offer.
Beginning on the date on which any of Seller's Employees are hired by
Buyer, Buyer shall assume all obligations and liabilities which may arise as a
result of Buyer's employment of such Employees on or after such first date of
employment of such Employees. Nothing contained herein is to be construed as
offering or creating an employment contract for any such Employee or any other
obligation to employ such Employees. All Employees of the Branches will have
their earned compensation including accrued vacation time paid in full by Seller
through the Closing Date.
This Agreement is not intended to create and does not create any
contractual or legal rights in or enforceable by any Employee. Buyer agrees to
obtain prior approval of Seller before sending any communications to any
Employee employed at the Branches concerning the subject matter of this Section
12.1, which approval shall not be unreasonably withheld. This Agreement may be
amended or terminated without liability to any Employee.
Buyer shall have the right but not the obligation prior to the Closing
to provide training to any Employees that will become employees of Buyer after
the Closing as set forth in this Section 12.1. Such training shall be at the
expense of Buyer and shall be conducted after business hours at a location other
than the Branches. At the request of Buyer, Seller shall compensate employees,
in accordance with Seller's customary policies and practices, for the Employee's
time spent being trained by Buyer and the Employees' reasonable reimbursable
expense (such compensation to be reimbursed by Buyer to Seller at Closing or
termination (the "Employee Reimbursements")). Seller shall cooperate with Buyer
to make such Employees available for such training prior to the Closing.
12.2 EMPLOYEE BENEFITS. All full-time Employees at the Branches who
become employees of Buyer will, on and as of the Closing Date, be immediately
eligible to participate in Buyer's medical insurance plan. All full time and
part-time Employees who become employees of Buyer shall, on and as of the
Closing Date, be eligible to participate in accordance with Buyer's policies and
practices and the terms and conditions of any applicable benefit plan, in
Buyer's other employee benefit plans and other fringe benefits and rights,
including without limitation vacation pay, enjoyed by employees of Buyer in
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comparable positions including any pension or 401(k) plans. For all such
purposes, the Closing Date shall be deemed the hire date and all eligibility
waiting periods shall apply.
ARTICLE XIII
OTHER AGREEMENTS
----------------
13.1 NOTICES TO DEPOSITORS. Seller shall provide Buyer, as soon as
practicable, with a customer list regarding the accounts to be assumed by Buyer
as contemplated herein, together with data tapes. On the Closing Date, Seller
shall provide Buyer a final customer list of the assumed Deposits, which shall
be updated as of any subsequent conversion date. At the time that Seller
provides to Buyer the customer lists pursuant to this paragraph, Seller shall
notify Buyer of any customer addresses which Seller is aware are invalid.
As soon as practicable after receipt of all required regulatory
approvals, Seller shall notify the holders of the Deposits to be assumed by
Buyer that, subject to closing requirements, Buyer will be assuming the
liability of the Deposits and will not continue services provided by Seller
which are not routinely offered by Buyer. The notification will be based on the
list and data tapes referred to in the preceding paragraph and a listing
maintained at Seller's Branch of the new accounts opened since the date of the
list. Buyer shall send notification to the same holders setting out the details
of its administration of the assumed accounts. Each Party shall obtain the
approval of the other of its notification letter(s), which approval shall not be
unreasonably withheld or delayed.
13.2 SAFE DEPOSIT BOXES. As soon as practicable after receipt of all
required regulatory approvals, the Seller shall notify by letter renters of Safe
Deposit Boxes located at the Branches of the disposition of their Safe Deposit
Boxes as of the Closing Date. In the event of removal of such boxes to a new
location, the Parties agree to cooperate in the safe and lawful transfer of such
boxes. The costs and expenses incurred in the transfer and security of such
boxes will be borne by Buyer. All key or other deposits related to the Safe
Deposit Boxes which are held by Seller shall be transferred to Buyer as of the
Closing Date as part of the Closing.
13.3 INCOMING DEPOSITS AND MAIL. In the event Seller receives after the
Closing Date, a deposit, payment, legal process or mail with respect to the
Assets or Deposits transferred to Buyer, Seller shall, at Seller's expense, mail
such deposit, payment, legal process or other mail to Buyer within one (1)
Business Day after receipt thereof at the address Buyer may from time to time
designate.
13.4 RETURNED ITEMS. Any items that were (i) credited for deposit to,
or (ii) cashed against, an account at the Branches prior to the Closing and are
returned unpaid at any time after the Closing and within the guidelines
specified under "Regulation CC" of the Federal Reserve System ("Returned Items")
will be handled as follows:
(a) If Seller is charged for the Returned Item, Seller shall
notify Buyer and if there are sufficient funds in the account to which such
Returned Item was credited or any other accounts on deposit with Buyer in the
name of the party liable for such Returned Item, Buyer will debit any or all of
such accounts an amount equal in the aggregate to the Returned Item or all funds
available in the subject account, if less. If there are not sufficient funds in
the accounts which may be debited (for reasons other than Buyer's breach of
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Section 13.7), Buyer will have no obligation to repay Seller unless and until
Buyer obtains reimbursement from the party liable for the Returned Item.
(b) If Buyer's bank account is charged for the Returned Item,
Buyer will use reasonable efforts to obtain reimbursement from the account to
which, or from the party to whom, the Returned Item was credited. If there are
sufficient funds in the account to which such Returned Item was credited or any
other accounts on deposit at any branch office of Buyer standing in the name of
the party liable for such Returned Item, Buyer will debit any or all of such
accounts in an amount equal in the aggregate to the Returned Item. If those
accounts do not contain funds sufficient to reimburse Buyer fully (for reasons
other than Buyer's breach of Section 13.7), Seller will, upon notice from Buyer,
immediately repay to Buyer the amount of the Returned Item and Buyer will assign
the Returned Item to Seller for collection. For a reasonable period of time
after reimbursement from Seller, Buyer will cooperate with Seller in its efforts
to obtain reimbursement from the party liable for the Returned Item.
(c) Any items that were credited for deposit to or cashed
against an account at the Branches prior to the Closing Date and are returned
unpaid more than sixty (60) days after the Closing will be the responsibility of
Seller.
13.5 ACH ITEMS AND WIRE TRANSFERS. Buyer and Seller shall use
commercially reasonable efforts to transfer all ACH arrangements to Buyer as
soon as practicable after the Closing Date. Buyer shall continue such ACH
arrangements and such recurring debit and credit arrangements as are originated
and administered by third parties and for which Buyer need act only as
processor; Buyer shall have no obligation to continue recurring debit
arrangements that were originated or administered by Seller, and Seller shall
terminate such arrangements on or prior to the Closing Date. After the Closing
Date, Seller will use commercially reasonable efforts to (i) telecopy or deliver
to Buyer on each Business Day after receipt, at the address designated by the
Buyer, a summary of ACH Items affecting the Deposits (such summary to include
claim number, suffix (if applicable), source name, trace id, client name and
effective date); and (ii) remit by wire transfer to Buyer all ACH Item funds
that are intended for Deposit accounts being transferred to Buyer; provided,
however, that Seller's obligation to deliver such summaries and to forward such
ACH Items shall continue for not more than one hundred and twenty (120) days
after the Closing Date, unless an extension is agreed upon. Extensions must be
agreed upon by Buyer and Seller not less than seven (7) days prior to the end of
such period. Thereafter, Seller will return all ACH Items to the originator
marked "Account sold to another DFI."
ACH transfers which have not been rerouted directly to Buyer after
sixty (60) days from Closing, shall be handled as follows: (i) Buyer shall
notify such ACH users that they must contact the ACH originator and complete the
transfer; (ii) if the transfer remains unconcluded after ninety (90) days from
Closing, Buyer shall renotify such ACH users that their ACH transaction will
cease to be processed within the one month period following said notification;
and, (iii) after one hundred twenty days (120) from Closing, Seller shall return
the ACH transaction to the originator, marked "Account sold to another DFI."
For a period of thirty (30) days from the Closing, Seller shall upon
receipt thereof, notify Buyer of incoming wire transfers to an account(s) of a
Deposit transferred to Buyer at the Closing and shall use commercially
reasonable efforts to wire same to Buyer on the same day the funds of such
incoming wire transfer for the account(s) of such Deposit.
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13.6 CHECKING ACCOUNTS. Prior to the Conversion Date, Buyer, at its
sole expense, will mail to holders of those Deposits acquired from Seller which
may be accessed by checks, new checks MICR encoded with Buyer's routing and
transit numbers and the Buyer's customer identification number. On a daily
basis, Seller, at its sole expense, will outsort all Branch checks received by
it drawn on accounts assumed by Buyer and prepare them for delivery within one
Business Day to Buyer's service center at Buyer's expense. Buyer shall either
pay the items or return them in accordance with the customer agreement and the
California Uniform Commercial Code and all applicable federal laws and
regulations. Seller's obligation to outsort and deliver such Branch checks shall
continue for sixty (60) days after the Closing Date. After sixty (60) day
period, Seller will stop accepting such items and will return items marked
"Refer to Maker."
Seller will furnish to Buyer a daily accounting of debits to its
clearing account. On a daily basis, Buyer and Seller will agree on the
settlement amounts of inclearing items transferred by Seller to Buyer. Buyer
will remit the settlement amount on the next Business Day, by immediately
available funds, to the Seller.
13.7 HOLDS. Holds that have been placed by Seller on particular
accounts or on individual checks, drafts, or other instruments and listed on the
schedule referred to in the next sentence will be continued by Buyer under the
same terms. Seller will deliver to Buyer at the Closing a schedule of such holds
which describes the terms thereof.
13.8 RETIREMENT ACCOUNTS. Buyer will assume certain Retirement Accounts
held at Seller's Branch according to the terms contained herein and in the
Retirement Accounts Transfer Agreement attached hereto as Exhibit D.
13.9 CARD PROCESSING. Seller will void on and as of the Closing Date
all (i) ATM access cards issued by it to customers of the Branches who will not
have ATM-accessible accounts with Seller after the Closing Date and (ii) debit
cards issued by it to customers of the Branches who will not have debit
card-accessible accounts with Seller after the Closing Date. Seller will notify
the customer in writing as part of the notice requested under Section 13.1
above, of such cancellation of the ATM access cards and debit cards.
Seller agrees to provide to Buyer the necessary data and tapes
required, prior to the Closing Date, to accommodate the processing of ATM and
debit cards, which may then be issued prior to the Closing Date. Furthermore,
the Parties agree to settle within two (2) Business Days of the ATM transaction
date for transactions occurring prior to Closing or during the conversion period
and for customers with sufficient funds: (i) any and all rejected ATM and debit
card transactions processed after the Closing Date, and (ii) any and all ATM and
debit card transactions processed while the ATM or debit card network could not
communicate with Seller's main host. Buyer agrees to remit the total sum of such
transactions to Seller on the same date the transactions are settled.
Any claim submitted under "Regulation E" of the Federal Reserve System,
for transaction processed prior to the Closing Date on Deposits transferred to
Buyer, shall be settled as follows:
(a) If the claim is submitted to Seller, Seller shall process
the claim under the guidelines specified in "Regulation E," and if a
reimbursement to the customer is determined necessary, Seller shall directly
reimburse the customer.
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(b) If the claim is submitted to Buyer, Buyer shall refer
claimant to Seller.
Such settlement shall continue for a period of sixty (60) days
following the Closing Date. All claims submitted after such sixty (60) day
period shall be returned by Seller to the originator of the claim.
13.10 DATA PROCESSING CONVERSION. The Parties agree to (i) insure the
orderly transfer of all data tapes and processing information, and will
facilitate an electronic and systematic conversion of all applicable data
regarding Account Loans, ATM Cards (some of which, for the avoidance of doubt,
contain debit card features) and Deposits whereby each Party will bear the cost
associated with the transfer of its tapes and information and the conversion of
its data except as otherwise agreed upon; (ii) at a field-to-field meeting to be
held at a time mutually acceptable to the parties but no later than thirty (30)
days after the Signature Date, exchange all data information necessary to
complete such conversion process; (iii) within ten (10) days after such
field-to-field meeting, Seller shall provide all systems information necessary
to complete such conversion processing and provide two (2) sets of the initial
data processing pre-conversion file layout and product definitions; (iv) provide
the final data processing pre-conversion file packages on a timely basis
allowing for pre-conversion; (v) provide any and all additional data processing
information added to the system subsequent to the preparation of the final
reconversion tapes on a day-to-day basis; and (vi) use commercially reasonable
efforts to provide by 12:00 p.m., on the day immediately following the Closing
Date, two (2) sets of final data processing conversion file packages.
Immediately prior to or at the date of conversion of the data
processing information at the Branches, Seller shall (i) deconvert accounts and
block any further activity with respect thereto, (ii) cycle all accounts, and
(iii) prepare and send out account statements (and provide microfiche, if
available, to Buyer) dated as of the conversion date to all account holders.
13.11 INTEREST REPORTING. Seller shall report for the current calendar
year up through and including the Closing Date all interest credited to,
interest premiums paid, interest withheld and early withdrawal penalties charged
to the Deposits which are to be assumed by Buyer as contemplated by this
Agreement. Buyer shall be entitled to receive from Seller such information.
Buyer shall report from but not including the Closing Date through the end of
the calendar year all interest credited to, interest withheld from, and early
withdrawal penalties charged to the Deposits assumed by Buyer. Such reports
shall be made to the holders of these accounts and to the applicable federal and
state regulatory agencies. Seller shall promptly process any customer requests
(including amended 1099s) made which pertain to the period prior to Closing.
13.12 WITHHOLDING. Seller shall deliver to the Buyer on or before the
Closing Date data indicating all "B" notices (TINs do not match) and "C" notices
(under reporting/IRS imposed withholding) issued by the Internal Revenue Service
("IRS") relating to the Deposits transferred to Buyer. Furthermore, any and all
listings of similar notices regarding such Deposits received by Seller from the
IRS will be immediately delivered to Buyer. All notices received by Seller from
the IRS releasing withholding restrictions on Deposits transferred to Buyer will
be immediately delivered to Buyer. Any amounts required by any governmental
agency to be withheld from any of such Deposits (the "Withholding Obligations")
or any penalties imposed by any governmental agency will be handled as follows:
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(a) Any Withholding Obligations required to be remitted to the
appropriate governmental agency on or prior to the Closing Date will be withheld
and remitted by Seller and any other sums withheld by Seller pursuant to
Withholding Obligations on or prior to the Closing Date shall also be remitted
by Seller to the appropriate governmental agency on or prior to the time they
are due.
(b) Any Withholding Obligations required to be remitted to the
appropriate governmental agency after the Closing Date with respect to
Withholding Obligations after the Closing Date and not withheld by Seller as set
forth in Section 13.12(a) above will be withheld and remitted by the Buyer.
Within two (2) days of receipt of such notice, Seller shall notify Buyer and
Buyer shall comply with notification requirements.
(c) Any penalties described on "B" notices from the IRS or any
similar penalties which relate to Deposit accounts opened by Seller prior to the
Closing Date will be paid by Seller promptly upon receipt of the notice
providing such penalty assessment resulted from Seller's acts, policies or
omissions. Similarly, any efforts to reduce such penalties shall be the
responsibility of Seller.
(d) Any penalties assessed due to information missing from
information filings regarding Deposits transferred to Buyer, including, without
limitation, 1099 forms, shall be paid by Seller promptly upon receipt of the
notice providing such penalty assessment resulting from Seller's acts, policies
or omissions, but Seller shall be entitled to negotiate such penalties with the
IRS in good faith.
13.13 TAXPAYER INFORMATION. Seller shall deliver to Buyer within three
(3) Business Days after the Closing Date (i) TINs (or record of appropriate
exemption) for all holders of Deposit accounts transferred to Buyer as
contemplated hereby; and (ii) all other information in Seller's possession or
reasonably available to Seller required by applicable law to be provided to the
IRS and/or account holders with respect to the Assets and Deposits transferred,
except for such information which Seller is obligated to make reports pursuant
to Sections 13.11 and 13.12 of this Agreement (collectively, the "Taxpayer
Information"). Seller hereby certifies that such information, when delivered,
shall accurately reflect the information provided by Seller's customers. Seller
shall, according to the terms of Section 14.2 of this Agreement, indemnify, hold
harmless and defend Buyer, Buyer's subsidiaries and Buyer's Affiliates from and
against any and all damages, losses, liabilities, costs, claims, obligations, or
expenses, including legal fees and expenses and fines and penalties arising from
or incurred or imposed in connection with any inaccuracy, act, or omission by
Seller in connection with the collection, recording, filing with appropriate
governmental agencies, or delivery to Buyer of the Taxpayer information.
13.14 POST-CLOSING DEPOSIT ITEM PROCESSING. Provided the Closing takes
place prior to April 20, 2000 (the "Conversion Date"), Seller shall continue to
provide item processing and other back office deposit processing services in
connection with the Deposits for a period ending no later than the Conversion
Date. Seller shall conduct such processing in the ordinary and usual course of
its business, in a manner consistent with its past practice. Buyer shall
compensate Seller for all third-party expenses Seller incurs in connection with
its processing pursuant to this Section 13.14. Seller and Buyer shall agree in
writing upon policies and procedures for such processing activities and shall
incorporate such writing as an exhibit to this Agreement.
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13.15 SELLER'S COOPERATION. From and after the Closing, Seller shall
cooperate with Buyer and shall provide assistance in responding to inquiries and
requests of customers of the Branches relating to Deposits transferred to Buyer
at the Closing to the extent such inquiries and requests relate to facts and
circumstances that occurred prior to the Closing.
ARTICLE XIV
GENERAL PROVISIONS
------------------
14.1 SURVIVAL. The representations and warranties made by the Parties
to this Agreement, and their respective obligations to be performed under the
terms hereof at, prior to, or after the Closing, shall not expire with, or be
terminated or extinguished by, the Closing, notwithstanding any investigation of
the facts constituting the basis of the representations and warranties of either
Party by the other Party hereto; provided, however, that all representations and
warranties shall terminate and be of no further effect on the date which is one
hundred and eighty (180) days after the Closing Date.
14.2 INDEMNIFICATION.
(a) Seller shall indemnify, hold harmless and defend Buyer
(and its Affiliates, successors, directors, officers and employees) from and
against any and all damage, loss, liability, costs, claim or expense (including
reasonable legal fees and expenses) incurred or suffered by Buyer (or its
Affiliates, successors, directors, officers and employees) in connection with a
claim asserted by a third party arising from:
(1) any material misrepresentation or material breach of
warranty, covenant or agreement made or to be performed by Seller pursuant to
this Agreement;
(2) any action taken or omitted to be taken by Seller, or
any transaction or any event occurring on or prior to the Closing Date, relating
to the Assets (other than the Real Estate) or the Deposits, or any action taken
or omitted to be taken by Seller with respect to the Employees, other than as
permitted by this Agreement and any suits or proceedings commenced in connection
therewith;
(3) all debts, obligations and liabilities excluded
pursuant to Section 2.3(e) above; and
(4) Seller's willful misconduct or gross negligence in
the performance of its interim processing activities after the Closing Date and
before the Conversion Date as contemplated by Section 13.14 of this Agreement;
provided, that Seller shall not be required to so indemnify to the extent a
liability, cost, claim or expense arises from performance by Seller in
accordance with the written direction of Buyer.
(b) Buyer shall indemnify, hold harmless and defend Seller
(and its Affiliates, successors, directors, officers and employees) from and
against any and all damage, loss, liability, cost, claim or expense (including
reasonable legal fees and expenses) incurred or suffered by Seller (or its
Affiliates, successors, directors, officers and employees) in connection with a
claim asserted by a third party arising from:
(1) any material misrepresentation or material breach of
warranty, covenant or agreement made or to be performed by Buyer pursuant to
this Agreement, and
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(2) any action taken or omitted to be taken by Buyer, or
any transactions or any event occurring after the Closing Date, relating to the
Assets (other than the Real Estate) or the Deposits (other than an event arising
solely from the Seller's negligence in the course of interim processing
activities pursuant to Section 13.14), or any action taken or omitted to be
taken by Buyer with respect to the Employees to the extent that such Assets or
Deposits are assumed by or transferred to Buyer or the Employees are employed by
Buyer, and any suits or proceedings commenced in connection therewith.
(c) A Party seeking indemnification pursuant to this Section
14.2 (an "Indemnified Party") shall give prompt notice to the Party from whom
such indemnification is sought (the "Indemnifying Party") of the assertion of
any claim, or the commencement of any action or proceeding, in respect of which
indemnity may be sought hereunder. The Indemnified Party shall assist the
Indemnifying Party in the defense of any such action or proceeding. The
Indemnifying Party shall have the right to, and shall at the request of the
Indemnified Party, assume the defense of any such action or proceeding at its
own expense. In any such action or proceeding, the Indemnified Party shall have
the right to retain its own counsel, but the fees and expenses of such counsel
shall be at its own expense unless:
(1) the Indemnifying Party and the Indemnified Party
shall have mutually agreed to the retention of such counsel and the payment of
such counsel's fees and expenses, or
(2) the named Parties to any such suit, action or
proceeding (including any impleaded Parties) include both the Indemnifying Party
and the Indemnified Party and, in the reasonable judgment of the Indemnified
Party, representation of both Parties by the same counsel would be inappropriate
due to actual or potential conflicting interests between them.
(d) An Indemnifying Party shall not be liable under this
Section 14.2 for any settlement effected without its consent of any claim,
litigation or proceeding in respect of which indemnity may be sought hereunder.
The Indemnifying Party may settle any claim without the consent of the
Indemnified Party, but only if the sole relief awarded is monetary damages that
are paid in full by the Indemnifying Party. An Indemnified Party shall, subject
to its reasonable business needs, use reasonable efforts to minimize the
indemnification sought from the Indemnifying Party hereunder. Notwithstanding
the foregoing, no investigation by an Indemnified Party at or prior to the
Closing shall relieve an Indemnifying Party of any liability hereunder, unless
the Indemnified Party seeks indemnity in respect of a representation or warranty
which it actually had reason to believe to be incorrect as a result of its
investigation prior to the Closing and the Indemnified Party intentionally
failed to bring such belief to the attention of the Indemnifying Party prior to
the Closing.
(e) Nothing in this Section 14.2 shall limit Buyer's or
Seller's rights or remedies for misrepresentations, breaches of this Agreement
or any other action or inaction by the other party hereto.
BROKER'S FEES. Seller has entered into an agreement with BankSite
whereby certain fees will be due to BankSite. Such fees will be borne solely by
Seller. With the exception of such engagement by Seller of BankSite, each of the
Parties represents and warrants to the other that it has dealt with no broker or
finder in connection with any of the transactions contemplated by this
Agreement, and that no action has been taken that would give rise to any valid
claim for brokerage commission, finder's fee or other like commission. Buyer and
Seller each undertake to indemnify and hold each other harmless against any
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loss, liability, damage, cost, claim or expense incurred by reason of any
brokerage commission, or finder's fee alleged to be payable because of any act,
omission or statement of the indemnifying Party.
14.3 PUBLICITY AND NOTICES. Prior to the announcement of this Agreement
to the Employees, both Parties will limit the distribution of information
relative to the transaction to those persons who must be aware of this Agreement
for the performance of their duties. No Party will issue a press release
announcing this Agreement or the transactions described herein to the public nor
make any public announcements of this Agreement or the transactions described
herein, without consulting with and obtaining approval of the other Party, which
approval shall not be unreasonably withheld, and in any event such initial
announcement shall not be made prior to notification to the Employees. Each
Party agrees to forward copies of any and all written public statements
following the initial announcement to the other Party for review and to consult
with such other Party with respect to any comments such Party may have for one
(1) Business Day after receipt by such Party of such proposed written statement.
14.4 [INTENTIONALLY OMITTED]
14.5 ATTORNEYS' FEES. Each Party shall bear the cost of its own
attorneys' fees incurred in connection with the preparation of this Agreement
and consummation of the transactions described herein. Notwithstanding the
foregoing, in any action between the Parties seeking enforcement of any of the
terms and provisions of this Agreement, the prevailing Party in such action
shall be awarded, in addition to damage, injunctive or other relief, its
reasonable costs and expenses, not limited to taxable costs, and reasonable
attorneys' fees and expenses.
14.6 SALES AND TRANSFER TAXES. All excise, sales, use, transfer,
documentary transfer taxes and recording taxes and any other taxes or
assessments which are payable or arise as a result of this Agreement or the
consummation of the transfer of the Assets and Deposits to Buyer as contemplated
hereby (except income taxes determined by reference to the income of one of the
Parties) shall be paid by Buyer to Seller (i) upon the closing of the escrows
for the Real Property of (ii) upon Buyer's receipt of satisfactory evidence that
Seller has paid such taxes or is legally obligated to pay such taxes (and that
such taxes have not already been paid through escrow). Seller shall report such
tax (excluding real property taxes that are prorated) on Seller's sales tax
return.
14.7 NOTICES. All notices, requests, demands and other communication
given or required to be given under this Agreement shall be in writing, duly
addressed to the Parties as follows:
To Seller: Fidelity Federal Bank, FSB
4565 Colorado Boulevard
Los Angeles, CA 90039
Attn: Senior Vice President, Retail Operations
With a Copy to: Fidelity Federal Bank, FSB
4565 Colorado Boulevard
Los Angeles, CA 90039
Attn: General Counsel
To Buyer: First Federal Bank of California
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401 Wilshire Boulevard
Santa Monica, California 90401
Attn: James P. Giraldin, Chief Operating Officer
With a copy to: First Federal Bank of California
401 Wilshire Boulevard
Santa Monica, California 90401
Attn: Ann Lederer, General Counsel
Any such notice sent by registered or certified mail, return receipt
requested, shall be deemed to have been duly given and received seventy-two (72)
hours after the same is addressed and mailed with postage prepaid. Notice sent
by any other manner shall be effective only upon actual receipt thereof.
14.8 ARM'S LENGTH TRANSACTION. This Agreement has been negotiated at
arm's length and between persons sophisticated and knowledgeable in the matters
dealt with this Agreement. In addition, each Party has been represented by
experienced and knowledgeable legal counsel. Accordingly, any rule of law
(including California Civil Code Section 1654) or legal decision that would
require interpretation of any ambiguities in this Agreement against the Party
that has drafted it is not applicable and is waived. The provisions of this
Agreement shall be interpreted in a reasonable manner to effect the purposes of
the Parties and this Agreement.
14.9 SUCCESSORS AND ASSIGNS. All of the terms and provisions of this
Agreement shall be binding upon and inure to the benefit of the Parties hereto
and their respective transferees, successors and assigns, but this Agreement may
not be assigned by any Party without the prior written consent of the other and
any attempted assignment by a Party without the other Party's consent shall be
null and void; provided, however, that the foregoing shall not prohibit or
require the consent of the other Party for an assignment by a Party in
connection with a merger or consolidation of such party with, or the sale of a
substantial portion of such Party's assets with, another federally insured
depository institution, provided such assignment shall not occur until the
expiration of one hundred and twenty (120) days from the later to occur of the
Closing Date or the Conversion Date.
14.10 THIRD PARTY BENEFICIARIES. Each Party hereto intends that this
Agreement shall not benefit or create any right or cause of action in or on
behalf of any person other than the Parties hereto.
14.11 GOVERNING LAW; VENUE. This Agreement shall be governed by and
construed in accordance with the laws of the State of California without regard
to the conflict of law provisions of the laws of such state. The Parties hereto
expressly submit to the exclusive jurisdiction and venue of the Superior Court
of the County of Los Angeles or the United States District Court for the Central
District of California (the "California Courts"). Subject to the arbitration
provisions of this Agreement, any action, suit or proceeding arising out of, or
relating to, this Agreement or any agreement or instrument delivered under this
Agreement, the subject matter thereof or the transactions contemplated hereby
shall be brought in the California Courts, and in such event the parties hereto
irrevocably submit themselves to the exclusive jurisdiction of the California
Courts and hereby waive, for themselves and their respective successors and
assigns, all rights they may have to bring or have tried elsewhere any such
action, suit or proceeding.
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14.12 ARBITRATION.
NOTICE: BY INITIALLING IN THE SPACE BELOW, EACH PARTY IS AGREEING TO
HAVE ANY DISPUTE ARISING OUT OF THE MATTERS INCLUDED IN THE DISPUTE RESOLUTION
PROVISION DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA LAW AND EACH
PARTY IS GIVING UP ANY RIGHTS SUCH PARTY MIGHT POSSESS TO HAVE THE DISPUTE
LITIGATED IN A COURT BY JURY TRIAL. BY INITIALLING IN THE SPACE BELOW EACH PARTY
IS GIVING UP ITS JUDICIAL RIGHTS TO DISCOVERY AND APPEAL UNLESS SUCH RIGHTS ARE
SPECIFICALLY INCLUDED IN THE DISPUTE RESOLUTION PROVISION. IF ANY PARTY REFUSES
TO SUBMIT TO ARBITRATION AFTER AGREEING TO THIS PROVISION, SUCH PARTY MAY BE
COMPELLED TO ARBITRATE UNDER THE AUTHORITY OF THE CALIFORNIA CODE OF CIVIL
PROCEDURE. EACH PARTY'S AGREEMENT TO THIS ARBITRATION PROVISION IS VOLUNTARY.
WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES
ARISING OUT OF THE MATTERS INCLUDED IN THE DISPUTE RESOLUTION PROVISION TO
NEUTRAL ARBITRATION.
---------
Buyer's Initials
---------
Seller's initials
IF ANY DISPUTES OR CONTROVERSIES ARISE BETWEEN THE PARTIES IN
CONNECTION WITH THIS AGREEMENT, ITS INTERPRETATION, OR THE ACTS OR DUTIES OF THE
PARTIES HEREUNDER OR UNDER ANY DOCUMENT DELIVERED HEREUNDER, SUCH DISPUTES OR
CONTROVERSIES SHALL BE SUBMITTED TO AND RESOLVED BY BINDING ARBITRATION IN
ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA AND THE COMMERCIAL
ARBITRATION RULES OF THE AMERICAN ARBITRATION ASSOCIATION. ALL ARBITRATION
PROCEEDINGS SHALL BE CONDUCTED IN LOS ANGELES, CALIFORNIA BY A SINGLE
ARBITRATOR. THE DECISION OR AWARD OF THE ARBITRATOR SHALL BE FINAL AND BINDING,
AND JUDGMENT THEREON MAY BE ENTERED IN A CALIFORNIA COURT, AND THEREAFTER IN THE
COURT OF ANY SISTER STATE. IT IS UNDERSTOOD THAT THE ARBITRATOR SHALL HAVE NO
AUTHORITY TO ADD TO, SUBTRACT FROM, OR MODIFY ANY PROVISION OF THIS AGREEMENT.
14.13 ENTIRE AGREEMENT. This Agreement, including all schedules and
exhibits, contains all of the agreements of the Parties to it with respect to
the matters contained herein and no prior or contemporaneous agreement or
understanding, oral or written, pertaining to any such matters shall be
effective for any purpose. No provision of this Agreement may be amended or
added to except by an agreement in writing signed by the Parties hereto or their
respective successors in interest and expressly stating that it is an amendment
of this Agreement.
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14.14 HEADINGS. The headings of this Agreement are for purposes of
reference only and shall not limit or define the meaning of the provisions of
this Agreement.
14.15 SEVERABILITY. If any paragraph, section, sentence, clause or
phrase contained in this Agreement shall become illegal, null or void or against
public policy, for any reason, or shall be held by any court of competent
jurisdiction to be illegal, null or void or against public policy, the remaining
paragraphs, sections, sentences, clauses or phrases contained in this Agreement
shall not be affected thereby.
14.16 WAIVER. The waiver of any breach of any provision under this
Agreement by any Party hereto shall not be deemed to be a waiver of any
preceding or subsequent breach under this Agreement. Any waiver of any provision
of this Agreement shall be in writing executed by the party granting such
waiver.
14.17 NUMBER(S). Whenever the context of this Agreement so requires,
the singular includes the plural, the plural includes the singular, the whole
includes any part thereof.
14.18 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original but all of which shall
constitute one and the same instrument
14.19 TIME IS OF THE ESSENCE. TIME IS OF THE ESSENCE OF EACH AND EVERY
PROVISION OF THIS AGREEMENT.
14.20 WAIVER OF SPECIFIC PERFORMANCE AND LIS PENDENS. In the event the
transactions do not occur due to a material default by Seller, Buyer as its sole
remedy shall be entitled to damages in accordance with the provisions of this
Agreement or otherwise available under law. As a material consideration to
Seller's entering into this Agreement with Buyer, Buyer waives any right (a) to
record or file a notice of lis pendens or notice of pendency of action or
similar notice against any of the Real Estate or (b) in any instance where
Seller has first initiated an action, proceeding or arbitration alleging a
material default by Buyer, to pursue an action for specific performance of this
Agreement.
34
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have duly authorized and
executed this Agreement as of the date first above written.
FIDELITY FEDERAL BANK, FIRST FEDERAL BANK OF CALIFORNIA
A Federal Savings Bank
By: /s/ JAMES E. STUTZ By: /s/ JAMES P. GIRALDIN
------------------------------------- ---------------------------
JAMES E. STUTZ JAMES P. GIRALDIN
President and Chief Operating Officer Its: Chief Operating Officer
By: /s/ ANN LEDERER
---------------------------
ANN LEDERER
Its: Secretary
35
<PAGE>
SCHEDULE 1.1
BRANCH NAME ADDRESS
- ----------- -------
<PAGE>
EXHIBIT A
---------
ASSIGNMENT AND ASSUMPTION AGREEMENT
-----------------------------------
[SEPARATELY PROVIDED]
<PAGE>
EXHIBIT B
---------
GENERAL BILL OF SALE AND ASSIGNMENT AND ASSUMPTION
FOR VALUABLE CONSIDERATION, receipt of which is hereby acknowledged,
Fidelity Federal Bank, a Federal Savings Bank (the "Seller"), pursuant to the
Agreement to Purchase Assets and Assume Liabilities dated ________ (the
"Agreement"), by and between Seller and FIRST FEDERAL BANK OF CALIFORNIA, a
federally chartered savings bank (the "Buyer"), hereby sells, transfers, grants,
delivers, and assigns to Buyer all of the right, title and interest of Seller in
and to the Account Loans, Records, Safe Deposit Boxes, Cash on Hand, Fixed
Assets listed on Schedule 1 attached hereto and service and maintenance
contracts listed on Schedule 2 attached hereto ("Contracts"). Capitalized terms
not defined herein shall have the meanings assigned to them in the Agreement.
Seller represents and warrants to Buyer that it has good and marketable
title to each and all of the items and things sold, transferred and conveyed,
that it has the full right to transfer such good and marketable title to Buyer,
that each of such items and things now is, and upon delivery to Buyer will be,
free and clear of all security interests, and all other liens, Encumbrances and
adverse claims, and that Buyer will have peaceful possession and quiet enjoyment
thereof from and after the date hereof.
In furtherance of the foregoing, Seller hereby appoints Buyer, its
successors and assigns, the true and lawful attorney-in-fact of Seller with full
power of substitution, in the name of Seller but for the benefit and at the
expense of Buyer (1) to collect for the account of Buyer all items hereby sold,
transferred and assigned to Buyer and (2) to institute and prosecute all actions
or proceedings which Buyer may deem proper in order to collect, assert or
enforce any claim, right or title of any kind in or to the property hereby sold,
transferred and assigned, to defend or compromise any and all claims, acts,
writs or proceedings in respect to any of such property and to do all such other
acts and things in relation thereto as Buyer shall deem advisable. This power of
attorney is coupled with an interest.
Buyer assumes and agrees to pay the obligations and liabilities of the
Seller under the Contracts accruing on and after the Closing Date.
Seller shall indemnify, hold harmless and, at the option of Buyer,
defend Buyer from and against any and all claims, liabilities, damages, costs
and expenses (including, but not limited to, reasonable attorneys' fees, court
costs and litigation expenses) relating to any of the assets herein transferred
arising from any act or failure to act of Seller before or on the date hereof,
or arising out of a violation of the warranty of title hereinabove set forth.
Buyer shall indemnify, hold harmless and, at the option of Buyer,
defend Seller from and against any and all claims, liabilities, damages, costs
and expenses (including, but not limited to, reasonable attorneys' fees, court
costs and litigation expenses) relating to any of the assets herein transferred
arising from any act or failure to act of Buyer after the date hereof, except
any such claim, liability, cost or expense caused by the gross negligence or
willful act of Seller.
In the event of any conflict between the terms hereof and the terms of
the Agreement, the terms of the Agreement shall prevail.
A-2
<PAGE>
This Bill of Sale may be executed in one or more counterparts, all of
which taken together shall constitute one instrument.
IN WITNESS WHEREOF, Buyer and Seller have executed this Bill of Sale as
of .
-----------------
FIDELITY FEDERAL BANK, FIRST FEDERAL BANK OF CALIFORNIA
A Federal Savings Bank
By: By:
------------------------------------- ---------------------------
James E. Stutz James P. Giraldin
President and Chief Operating Officer Its: Chief Operating Officer
By:
---------------------------
ANN LEDERER
Its: Secretary
A-3
<PAGE>
EXHIBIT C
---------
ASSUMPTION OF DEPOSIT LIABILITIES
For value received, FIRST FEDERAL BANK OF CALIFORNIA, a federally
chartered savings bank (the "Buyer"), executes and delivers this Assumption of
Deposit Liabilities (the "Assumption") to Fidelity Federal Bank, a Federal
Savings Bank (the "Seller"), in accordance with that certain Agreement to
Purchase Assets and Assume Liabilities dated by and between Seller and
Buyer (the "Agreement"). Capitalized terms as used in this Assumption have the
meanings assigned to them in the Agreement.
By its execution of this Assumption, Buyer assumes and agrees to pay
the Deposit liabilities of the Seller to the holders of Deposits domiciled at
the Seller's Branches for the amounts of such accounts or deposits, including
interest accrued thereon, as of the Closing Date, in accordance with the
Agreement and the terms of such Deposits in effect as of the Closing Date. Buyer
may administer such Deposit accounts acquired from Seller pursuant to Buyer's
own internal policies and procedures, and Buyer shall have no liability or
obligation to maintain in effect the policies and procedures of Seller governing
administration of the Deposit accounts before the Closing Date; provided,
however, that Buyer and not Seller shall be responsible for properly
implementing with affected customers any such changes in policies and procedures
governing administration of the Deposit accounts, and Buyer and not Seller shall
be liable for any damages, claims or losses, including costs and attorneys'
fees, resulting from any claims that such changes were improperly implemented.
Notwithstanding anything to the contrary contained in this Assumption
or in the Agreement, Buyer does not assume and shall have no liability for any
debts, liabilities, or obligations of Seller of any kind whatsoever except as
specifically set forth in this Assumption or the Agreement.
This Assumption will not create in any third party (including
account-holders) any rights or remedies against Buyer which such party did not
have against Seller prior to the execution and delivery of this Assumption with
respect to the liabilities and obligations specifically assumed hereby.
By its execution of this Assumption, Buyer acknowledges that it has
reviewed the Deposit liabilities described above, and agrees to assume those
liabilities upon the terms contained in this Assumption and in the Agreement.
In the event of any conflict between the terms hereof and the terms of
the Agreement, the terms of the Agreement shall prevail.
<PAGE>
This Assumption of Deposit Liabilities is executed to be effective as
of 11:59 p.m. on ________________.
FIRST FEDERAL BANK OF CALIFORNIA
By:
----------------------------
James P. Giraldin
Its: Chief Operating Officer
By:
----------------------------
Ann Lederer
Its: Secretary
B-2
<PAGE>
EXHIBIT D
---------
RETIREMENT ACCOUNTS
TRANSFER AGREEMENT
EXAMPLE ONLY
This Agreement (the "Transfer Agreement") is made between FIDELITY
FEDERAL BANK, A FEDERAL SAVINGS BANK, a federally chartered savings bank
("Seller") and FIRST FEDERAL BANK OF CALIFORNIA, a federally chartered savings
bank ("Buyer"). Capitalized terms not defined herein shall have the meanings
assigned to them in that certain Agreement to Purchase Assets and Assume
Liabilities made and entered into as of by and between Seller and Buyer (the
"Agreement"). Capitalized terms not otherwise defined herein shall have the
meanings ascribed to such terms in the Agreement.
RECITALS
--------
A. Seller has served as trustee with respect to certain Retirement
Accounts, sponsored by the Western League of Savings Institutions or its
predecessor (the "League"), (collectively, the "Plans"), the funds of which are
domiciled at the Branches as defined in the Agreement.
B. Pursuant to the Agreement, Buyer is acquiring from Seller certain
Deposits, including Deposits holding funds of the Plans.
C. In connection with the acquisition of such Deposits, Buyer will
succeed to the trusteeship of the Plans and become successor trustee in the
place of Seller.
D. The Parties deem it necessary and advisable to execute this Transfer
Agreement in order to describe the terms of transfer of the Plans and the duties
and responsibilities of the Parties with regard thereto.
E. Execution of this Transfer Agreement is a condition to and an
element of the consideration for the execution by the Parties of the Agreement.
(continued on next page)
<PAGE>
Now, therefore, in consideration of premises stated, above, the mutual
promises contained herein, and other good and valuable consideration, the
receipt and sufficiency of which the Parties hereby acknowledge, the Parties
hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 With respect to the sale of certain Assets and the assumption of
certain liabilities relating to the Branches, resigning trustee shall mean
Seller and successor trustee shall mean Buyer.
ARTICLE II
2.1 As of the Closing Date, or such other date and time as the Parties
may fix (the "Transfer Date"), the resigning trustee shall assign, transfer and
deliver to the successor trustee as set forth in the Agreement, funds and
Deposits, domiciled in resigning trustee's Branch. Furthermore, at least thirty
(30) days prior to the Closing Date, the resigning trustee shall request the
League to remove the resigning trustee as trustee of such Plans and appoint the
successor trustee effective as of the Closing Date.
2.2 Prior to the Transfer Date, the successor trustee shall notify
participants of each Plan acquired by successor trustee of the removal of the
resigning trustee as trustee and appointment of the successor trustee.
2.3 After the Transfer Date, the successor trustee shall not accept any
new plans naming the resigning trustee as trustee, nor shall the successor
trustee use any advertising, materials, plan documents, or any other printed
matter referring to the resigning trustee as trustee of any Retirement Accounts
sponsored by the League.
2.4 The resigning trustee shall prepare and file all required year-end
reports for all activity under the Plans transferred to successor trustee,
including, but not limited to, IRS form 1099R and IRS form 5498 for the portion
of the calendar year 2000 to and including the Transfer Date. The successor
trustee shall prepare and file such reports, where applicable, for the balance
of the calendar year 2000 and thereafter, so long as the successor trustee
remains as the trustee. It is further agreed that the resigning trustee and
successor trustee will each report their portion of withholding for such Plans
to the appropriate state and federal agencies.
2.5 In the event that the resigning trustee receives, after the
Transfer Date, any documents, correspondence or other written materials relating
to the Plans transferred to successor trustee, the resigning trustee will
forward such items to the successor trustee with a written explanation of such
items. The resigning trustee agrees to answer reasonable inquiries from the
successor trustee pertaining to the Plans or to any pending transaction or items
received after the Transfer Date.
2.6 Annual Transaction and Trustee fees for 2000 shall be collected by
the Seller provided that if the Closing occurs prior to the time which Seller in
the ordinary course would collect such fees such fees shall be collected by
Buyer. The successor trustee may assess any fees per Plan for 2001 and
thereafter pursuant to its own policies and procedures.
C-2
<PAGE>
2.7 On or before the Transfer Date, the resigning trustee shall deliver
to the successor trustee all original or legible certified copies of (i) all
documents executed by the depositors of the Plans to be transferred to successor
trustee, including, but not limited to, all adoption agreements, membership
agreements, plan amendments, and beneficiary forms, and (ii) all other records
and information necessary to allow the successor trustee to administer and
conduct business with respect to such Plans.
2.8 On or before the Transfer Date, the resigning trustee agrees to
provide the successor trustee with a complete and up-to-date listing of:
(a) any and all participants of the Plans transferred to
successor trustee that have reached age 70-1/2 by 2000, and prior year balances
required for calculations of mandatory distributions;
(b) any or all Plans at resigning trustee's Branch receiving
periodic distributions, the method of calculation for arriving at such amounts
distributed, and copies of the approved distribution forms:
(c) any and all Plans on the resigning trustee's system on
deposit at the Branches;
(d) any and all Plans at the resigning trustee's Branch
currently not exempted from either federal tax withholding or state tax
withholding, or both, and current filing status for each participant where
withholding may apply; and
(e) any and all Plans at resigning trustee's Branch where the
Plan participant has died and the date of death (if known) and a legible copy of
the death certificate when available.
2.9 The successor trustee agrees to indemnify and hold harmless the
resigning trustee, its Affiliates and successors from (i) any and all losses,
costs (including reasonable attorneys' fees), expenses, damages, liabilities or
penalties of every kind whatsoever that the resigning trustee, its Affiliates,
successors, directors, officers, employees, or agents may incur as a result of
the successor trustee's failure to perform its obligations under this Transfer
Agreement; and (ii) any penalties, taxes or other liabilities which might arise
in the event any act or omission by the successor trustee after the Transfer
Date results in disqualification of any Plan acquired from the resigning
trustee.
2.10 The resigning trustee agrees to indemnify and hold harmless the
successor trustee, its Affiliates and successors from any and all losses, costs
(including reasonable attorneys' fees), expenses, damages, liabilities, or
penalties that the successor trustee, its Affiliates, successors, directors,
officers, employees, or agents may incur as a result of any act, omission, or
breach of fiduciary obligation by the resigning trustee prior to the Transfer
Date or in fulfillment of its obligations under this Transfer Agreement.
2.11 After the Transfer Date, the successor trustee shall have no
further liability or obligation to the resigning trustee with respect to the
Plans transferred to the successor trustee, except as otherwise provided herein.
2.12 If any action or proceeding is brought by either Party against the
other pertaining to or arising out of this Transfer Agreement, the final
C-3
<PAGE>
prevailing Party shall be entitled to recover all costs and expenses, including
reasonable attorneys' fees, incurred on account of such action or proceeding.
2.13 This Transfer Agreement may be executed in any number of
counterparts, each of which shall be an original but all of which constitute one
and the same instrument.
2.14 Resigning trustee shall retain documentation of Plan activity
prior to the Transfer Date for a period required by law for normal retention,
and shall retain responsibility for answering reasonable, written inquiries from
the successor trustee pertaining to Plan activity prior to the Transfer Date,
including (but not limited to) information relating to account histories and
Plan distributions, transfers and contributions.
Prior to the Transfer Date, resigning trustee shall ensure that all
accounts at the Branches, if any, under Plans that also have accounts not held
at the Branches, are transferred.
Executed this day of , 2000
---- ------------------
FIDELITY FEDERAL BANK, FIRST FEDERAL BANK OF CALIFORNIA
A Federal Savings Bank
By: By:
------------------------------------- ---------------------------
James E. Stutz James P. Giraldin
President and Chief Operating Officer Its: Chief Operating Officer
By:
---------------------------
ANN LEDERER
Its: Secretary
C-4
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
RECITALS .........................................................1
AGREEMENT .........................................................1
ARTICLE I .........................................................1
DEFINITIONS .........................................................1
ARTICLE II .........................................................4
TERMS OF PURCHASE AND ASSUMPTION...............................................4
2.1 Purchase and Sale of Assets..................................4
2.2 Purchase Price...............................................5
2.3 Assumption of Liabilities....................................5
ARTICLE III .........................................................6
INSPECTION OF ASSETS AND REAL ESTATE VALUATION.................................6
3.1 Valuation of Real Estate.....................................6
3.2 Due Diligence Review, Inventory and Inspection...............7
3.3 Other Documents..............................................7
ARTICLE IV .........................................................8
CLOSING .........................................................8
4.1 Closing......................................................8
4.2 Settlement...................................................8
4.3 Post-Closing Adjustments.....................................9
4.4 Deliveries at Closing........................................9
ARTICLE V .........................................................9
REPRESENTATIONS AND WARRANTIES OF BUYER........................................9
5.1 Organization.................................................9
5.2 Authority....................................................9
5.3 Compliance with Other Instruments and Law....................9
5.4 No Breach....................................................9
5.5 Litigation..................................................10
5.6 Governmental Notices........................................10
5.7 Regulatory Approvals........................................10
5.8 Consents....................................................10
i
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
ARTICLE VI ........................................................10
REPRESENTATIONS AND WARRANTIES OF SELLER......................................10
6.1 Organization................................................10
6.2 Authority...................................................10
6.3 Compliance with Other Instruments and Law...................10
6.4 No Breach...................................................11
6.5 Litigation..................................................11
6.6 Title to Assets.............................................11
6.7 TIN Certification...........................................11
6.8 Account Loan Enforceability.................................11
6.9 Safe Deposit Boxes..........................................11
6.10 Insurance...................................................11
6.11 Taxes.......................................................11
6.12 Records.....................................................12
6.13 Service and Maintenance Contracts...........................12
6.14 Regulatory Approvals........................................12
6.15 Consents....................................................12
6.16 Operation...................................................12
6.17 Condemnation................................................12
6.18 Hazardous Substances........................................12
ARTICLE VII ........................................................13
COVENANTS OF BUYER ........................................................13
7.1 Assistance in Obtaining Regulatory Approvals................13
7.2 Performance of Liabilities..................................13
7.3 Consents and Notices........................................13
7.4 Further Assurances..........................................13
7.5 Confidentiality.............................................13
ARTICLE VIII ........................................................14
COVENANTS OF SELLER ........................................................14
8.1 Assistance in Obtaining Regulatory Approvals................14
ii
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
8.2 Consents and Notices........................................14
8.3 Access to Records and Information; Personnel; Customers.....14
8.4 Conduct of Business Pending Closing.........................15
8.5 Books and Records...........................................16
8.6 Insurance Policies..........................................16
8.7 Further Assurances..........................................16
8.8 Consents....................................................17
8.9 Operation of Branches.......................................17
8.10 Service and Maintenance Contracts...........................17
8.11 Signs.......................................................18
8.12 Material Changes............................................18
8.13 Confidentiality.............................................18
8.14 Repurchase of Certain Account Loans and Deposits............18
ARTICLE IX ........................................................19
NON-COMPETITION ........................................................19
9.1 Solicitation................................................19
9.2 Non-Competition.............................................19
ARTICLE X ........................................................19
CONDITIONS TO CLOSING ........................................................19
10.1 Conditions to the Obligations of Buyer......................19
10.2 Conditions to the Obligations of Seller.....................21
TERMINATION ........................................................22
11.1 Conditions for Termination..................................22
11.2 Effect of Termination.......................................23
ARTICLE XII ........................................................23
EMPLOYEES ........................................................23
12.1 Employees...................................................23
12.2 Employee Benefits...........................................23
ARTICLE XIII ........................................................24
OTHER AGREEMENTS ........................................................24
iii
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
13.1 Notices to Depositors.......................................24
13.2 Safe Deposit Boxes..........................................24
13.3 Incoming Deposits and Mail..................................24
13.4 Returned Items..............................................24
13.5 ACH Items and Wire Transfers................................25
13.6 Checking Accounts...........................................25
13.7 Holds.......................................................26
13.8 Retirement Accounts.........................................26
13.9 Card Processing.............................................26
13.10 Data Processing Conversion..................................27
13.11 Interest Reporting..........................................27
13.12 Withholding.................................................27
13.13 Taxpayer Information........................................28
13.14 Post-Closing Deposit Item Processing........................28
13.15 Seller's Cooperation........................................29
ARTICLE XIV ........................................................29
GENERAL PROVISIONS ........................................................29
14.1 Survival....................................................29
14.2 Indemnification.............................................29
14.3 Broker's Fees...............................................30
14.4 Publicity and Notices.......................................31
14.5 Incorporation of Exhibits...................................31
14.6 Attorneys' Fees.............................................31
14.7 Sales and Transfer Taxes....................................31
14.8 Notices.....................................................31
14.9 Arm's Length Transaction....................................32
14.10 Successors and Assigns......................................32
14.11 Third Party Beneficiaries...................................32
14.12 Governing Law; Venue........................................32
14.13 Arbitration.................................................32
iv
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
14.14 Entire Agreement............................................33
14.15 Headings....................................................34
14.16 Severability................................................34
14.17 Waiver......................................................34
14.18 Number(s)...................................................34
14.19 Counterparts................................................34
14.20 Time is of the Essence......................................34
14.21 Waiver of Specific Performance and Lis Pendens..............34
Schedule 1.1 LIST OF BRANCHES
Exhibit A - REAL PROPERTY SALE AGREEMENT AND ESCROW INSTRUCTIONS
Exhibit B - GENERAL BILL OF SALE AND ASSIGNMENT AND ASSUMPTION
Exhibit C - ASSUMPTION OF DEPOSIT LIABILITIES
Exhibit D - RETIREMENT ACCOUNTS TRANSFER AGREEMENT
v
<PAGE>
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MORTGAGE LOAN PURCHASE AGREEMENT
--------------------------------
This MORTGAGE LOAN PURCHASE AGREEMENT (this "AGREEMENT"),
dated as of February 7, 2000, by and between FIRST FEDERAL BANK OF CALIFORNIA, a
federally chartered savings bank having an office at 401 Wilshire Boulevard
Santa Monica, CA 90401 ("PURCHASER"), and FIDELITY FEDERAL BANK, A FEDERAL
SAVINGS BANK, a federally chartered savings bank having an office at 4565
Colorado Boulevard, Los Angeles, California 90039 ("SELLER").
W I T N E S S E T H:
- - - - - - - - - --
WHEREAS, Seller holds certain mortgage loans secured by
various types of multifamily properties;
WHEREAS, Purchaser agrees to purchase from Seller, and Seller
agrees to sell to Purchaser, mortgage loans in the approximate aggregate
principal amount of $125 million, all of which are secured by an interest in
Multifamily Real Property, pursuant to the terms and provisions set forth in
this Agreement;
WHEREAS, Purchaser is a sophisticated and experienced
purchaser of mortgage loans that has obtained its own expert technical and legal
advice; and
WHEREAS, Purchaser and Seller wish to prescribe the manner of
the conveyance, transfer and sale of the mortgage loans.
NOW, THEREFORE, in consideration of the premises and mutual
agreements set forth herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Purchaser and Seller
agree as follows:
ARTICLE I
DEFINITIONS
-----------
For purposes of this Agreement the following capitalized terms
shall have the respective meanings set forth below.
ALTA means the American Land Title Association.
ASSIGNMENT OF MORTGAGE means an assignment of the Mortgage or
equivalent instrument in recordable form, sufficient under the laws of
California to effect the sale of the Mortgage to Purchaser.
BRANCH CLOSING means the closing of the transactions contemplated by
the Branch Sale Agreement
BRANCH SALE AGREEMENT means that certain Agreement to Purchase Assets
and Assume Liabilities, dated as of February 7, 2000, by and between
Seller and Purchaser.
1
<PAGE>
BUSINESS DAY means any day other than (i) a Saturday or Sunday, or (ii)
a day on which banking and savings and loan institutions in the State
of California are authorized or obligated by law or executive order to
be closed.
CERTIFICATE OF DEFECT means a certificate in the form of Exhibit A,
appropriately completed, which shall (1) identify a Mortgage Loan with
respect to which a breach of a representation or warranty is alleged to
have occurred; (2) describe in detail the nature of the breach (and the
date of discovery of any claimed breach of a representation or warranty
under Section 6.2) and why the claimed breach has a material adverse
effect on the value of the related Mortgage Loan; (3) include all
reasonably available and detailed evidence of the existence of such
breach; and (4) refer to the section (and subsection) of this Agreement
under which such breach is claimed.
CLAIM means any claim, demand or legal proceeding.
CLOSING DATE means March 24, 2000, or such earlier date as the parties
mutually agree, time being of the essence.
CLTA means the California Land Title Association.
COLLATERAL DOCUMENTS means, for each Mortgage Loan, the Mortgage Note,
the Mortgage and any other documents or instruments in Seller's
possession creating or relating to the Mortgage Loan.
CURE PERIOD means, with respect to a Defective Mortgage Loan, the
period of thirty (30) calendar days commencing on the date Purchaser
delivers to Seller a Certificate of Defect pursuant to Section 5.2 with
respect to such Mortgage Loan; PROVIDED that, in the event that Seller
is diligently pursuing a course of action to cure a defect with respect
to a Defective Mortgage Loan that requires an action to be taken by a
third party, but such third party has not yet taken the required action
relating to the cure of such defect, such period shall be extended
until sixty (60) calendar days from the date Purchaser delivers to
Seller a Certificate of Defect pursuant to Section 5.2 with respect to
any such Mortgage Loan.
CURRENT MORTGAGE LOAN means a Mortgage Loan for which the last
scheduled payment of debt service is not more than 30 days past due
(without regard to any grace period) on and as of the Determination
Date.
DETERMINATION DATE means a date to be agreed upon by the parties, which
date shall be at least three (3) business days prior to the Closing
Date.
DEFECTIVE MORTGAGE LOAN means a Mortgage Loan as to which (1) there
exists a material breach of a representation or warranty contained in
Section 6.2, which breach materially and adversely affects the value of
such Mortgage Loan, and (2) Purchaser has timely delivered to Seller a
Certificate of Defect pursuant to Section 5.2.
DELETED MORTGAGE LOAN means a Mortgage Loan that has been withdrawn or
deleted by Seller and deleted from the Mortgage Loan Schedule because
it is a Defective Mortgage Loan.
2
<PAGE>
DUE DILIGENCE MATERIALS means all information prepared by Seller in
connection with the conduct of Purchaser's due diligence.
EXCLUDED DOCUMENTS means (i) any reports, analyses, valuations and
memoranda generated internally by Seller or by any of its consultants
other than any of such reports, analyses, valuations and memoranda
included in the Due Diligence Materials, (ii) any information with
respect to which Seller in good faith believes itself to be under a
duty of confidentiality and nondisclosure, or (iii) any confidential
communications between Seller and its legal counsel, including, without
limitation, any documents and communications that are subject to the
attorney-client privilege; PROVIDED, HOWEVER, that Excluded Documents
(A) shall not include any documents essential to Purchaser's ability to
acquire title to the Mortgage Loans, to own and service such Mortgage
Loans or to complete its due diligence in a commercially reasonable
manner with respect to such Mortgage Loans and (B) shall not include
documents relating to any litigation, arbitration or similar proceeding
involving a Mortgage Loan.
INTEREST-PAID-TO DATE means, for a Mortgage Loan, the date to which
interest payments have been made and credited, as set forth on the
Mortgage Loan Schedule.
INTERESTED PERSON means a person that is a Mortgagor or other obligor,
or has an affiliate that is a Mortgagor or other obligor.
MORTGAGE means the mortgage, deed of trust or other instrument securing
a Mortgage Note, which creates a lien on the estate in the real
property securing the Mortgage Note.
MORTGAGE FILE means, with respect to any Mortgage Loan the credit file,
servicing or management file, correspondence and other documents
relating to such Mortgage Loan in the possession of Seller, including a
tax printout for such Mortgage Loan, but excluding any Excluded
Documents.
MORTGAGE INTEREST RATE means the annual rate of interest borne on a
Mortgage Note.
MORTGAGE LOAN means one of approximately $125 million in aggregate
principal balance of Mortgage Loans transferred and sold hereunder, as
set forth on the Mortgage Loan Schedule; the term "Mortgage Loan" shall
include any mortgage loan on the Mortgage Loan Schedule and any
Substitute Mortgage Loan substituted for a Defective Mortgage Loan
after the Determination Date in accordance with the terms of this
Agreement, and shall exclude any Deleted Mortgage Loans.
MORTGAGED PROPERTY means the real property (including all improvements,
buildings, fixtures, building equipment and personal property thereon
and all additions, alterations and replacements made at any time with
respect to the foregoing) and all other collateral securing repayment
of the debt evidenced by a Mortgage Note.
MORTGAGEE means Seller, Purchaser or any subsequent holder of a
Mortgage Loan.
MORTGAGE LOAN SCHEDULE means the schedule to be created identifying the
Mortgage Loans to be transferred at Closing and setting forth the
Unpaid Principal Balance as of the Determination Date.
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MORTGAGE NOTE means the note or other evidence of the indebtedness of a
Mortgagor secured by a Mortgage and evidencing a Mortgage Loan.
MORTGAGOR means the obligor on a Mortgage Note.
MULTIFAMILY REAL PROPERTY means a fee or leasehold interest in real
estate improved with a five-or-more-unit residential dwelling.
PERMITTED INSURANCE EXPENSES means amounts paid by or for the account
of Purchaser for premiums for hazard and flood insurance on a Mortgaged
Property, which insurance has commercially customary and reasonable
terms, exclusions and deductible amounts; provided that such premiums
with respect to a Mortgaged Property shall be "Permitted Insurance
Expenses" only if the related Mortgagor has failed to pay such premiums
and either (1) Purchaser paid such premiums prior to delivery of any
required notice to Mortgagor in order to avoid an imminent lapse of
insurance coverage and, immediately thereafter, delivered any required
notice to the related Mortgagor of its failure to so pay, or (2) absent
such imminent lapse, Purchaser first delivered any required notice of
Mortgagor's failure to so pay after which Mortgagor failed to so pay,
and as a result of such failure, the Mortgaged Property would be
uninsured or underinsured, but for such payment by Purchaser.
PERMITTED REAL ESTATE TAX EXPENSES means amounts paid by or for the
account of Purchaser for real estate taxes on a Mortgaged Property when
(1) Purchaser first delivered any required notice under the Mortgage of
Mortgagor's failure to pay the real estate taxes, after which Mortgagor
(or a receiver, if applicable) failed to so pay, and (2) payment is
required to avoid the imposition of interest and/or penalties.
PERSON means an individual, corporation, partnership, joint venture,
association, joint stock company, trust, bank, unincorporated
organization or government or any agency or political subdivision
thereof.
PRINCIPAL PAYMENTS means with respect to a Mortgage Loan, all principal
payments of any nature on account of such Mortgage Loan, and proceeds
of any casualty, condemnation, foreclosure or repossession to the
extent applied to the principal balance of such Mortgage Loan, and
payments of any such principal by any guarantors of such Mortgage Loan,
received by or for the account of Purchaser, less any reasonable costs
and expenses incurred by Purchaser in good faith and paid to
unaffiliated third-party service vendors (provided that if such
collection is undertaken by Purchaser, the costs incurred do not exceed
amounts that would otherwise be paid to unaffiliated third-party
service vendors) in connection with the collection of the foregoing
amounts.
PURCHASER means FIRST FEDERAL BANK OF CALIFORNIA, a federally chartered
savings bank.
REMITTANCE DATE means the date that is five Business Days after the
applicable Servicing Cut-Off Date.
REPURCHASE PRICE means (i) in the event that a Mortgage Loan is
repurchased within ninety (90) days after the Closing Date, the then
unpaid principal balance of the Defective Mortgage Loan plus accrued
interest, as of the date of repurchase of such Mortgage Loan, and (ii)
in the event that a Mortgage Loan is repurchased more than ninety (90)
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days after the Closing Date, ____% of the then unpaid principal balance
of the Defective Mortgage Loan plus accrued interest, as of the date of
repurchase of such Mortgage Loan.
SELLER means FIDELITY FEDERAL BANK, A FEDERAL SAVINGS BANK, a federally
chartered savings bank.
SERVICING CUT-OFF DATE means the last calendar day of each month after
the Closing Date, to and including the last calendar day of the month
preceding the month in which the Servicing Transfer Date occurs, and
the Servicing Transfer Date.
SERVICING TRANSFER DATE means a date mutually acceptable to Seller and
Purchaser that shall occur not more than 30 days following the Closing.
SUBSTITUTE MORTGAGE LOAN means a mortgage loan with substantially
similar yields and characteristics selected by Seller.
SUBSTITUTION ADJUSTMENT means the difference between (i) (A) for
Mortgage Loans that are substituted within ninety (90) days after the
Closing Date, the then unpaid principal balance of the Substitute
Mortgage Loan(s) or (B) for Mortgage Loans that are substituted more
than ninety (90) days after the Closing Date, ____% of the then unpaid
principal balance of the Substitute Mortgage Loan(s) and (ii) the
Repurchase Price for the Defective Mortgage Loan(s) for which such
Substitute Mortgage Loan(s) are being substituted.
SUBSTITUTION NOTICE means a notice in the form of Exhibit B.
SUPPLEMENTAL MORTGAGE LOAN SCHEDULE means a schedule in substantially
the form and containing the information described in the schedule
attached hereto as Exhibit 6.2(t).
SURVIVAL TERMINATION DATE means the date that is the first anniversary
of the Closing Date.
TERMINATION EVENT means any action or failure to act that results in
one or more of the following occurrences with respect to a Mortgage
Loan: discounted or complete payoff, restructure, extension or
modification of all or any portion of such Mortgage Loan or the
realization upon any collateral securing such Mortgage Loan whether by
judicial or nonjudicial foreclosure, deed in lieu, UCC sale, bankruptcy
transfer or any other means, or Seller's rights having been materially
and adversely affected in a judicial or nonjudicial foreclosure
proceeding or bankruptcy proceeding or the release of all or any
portion of such collateral or any agreement to forbear from exercising
any remedies in connection with a material default under such Mortgage
Loan, or the conversion of a nonjudicial foreclosure to a judicial
foreclosure.
TOTAL PURCHASE PRICE means the aggregate sum, for all Mortgage Loans,
of the Unpaid Principal Balance of each Mortgage Loan as set forth on
the Mortgage Loan Schedule, plus accrued interest or minus prepaid
interest on each Mortgage Loan from the Interest-Paid-To Date to the
Closing Date at the applicable Mortgage Interest Rate.
UNPAID PRINCIPAL BALANCE means (i) for each Mortgage Loan set forth on
the Mortgage Loan Schedule, the principal balance of such Mortgage
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Loan, as set forth on the Mortgage Loan Schedule as of the
Determination Date and (ii) for each Substitute Mortgage Loan which is
substituted for a Deleted Mortgage Loan, the principal balance of such
Mortgage Loan on the date of substitution.
ARTICLE II
PURCHASE AND SALE OF MORTGAGE LOANS
-----------------------------------
SECTION 2.1 PURCHASE AND SALE. Subject to the terms and provisions set
forth in this Agreement, on the Closing Date, Seller shall sell and Purchaser
shall purchase the Mortgage Loans and pay to Seller the Total Purchase Price for
the Mortgage Loans.
SECTION 2.2 PAYMENT OF THE PURCHASE PRICE. Upon satisfaction of the
conditions precedent to the obligations of the parties set forth in Sections 4.4
and 4.5, Purchaser shall pay to Seller the Total Purchase Price by means of a
credit to reduce the amount that would otherwise be due from Seller to Purchaser
in connection with the Branch Closing (subject to certain adjustments in
connection with the Mortgage Loans as described in Sections 2.3 and 5.4 on the
Closing Date).
SECTION 2.3 CREDITS, PRORATIONS AND PAYMENTS ON THE MORTGAGE LOANS.
(a) POST-CLOSING PAYMENTS/REFUNDS RECEIVED BY SELLER OR
PURCHASER. Amounts received on the Mortgage Loans by Seller after the
Determination Date shall, except as otherwise provided in this Section 2.3, be
credited to the account of Purchaser and shall be remitted to Purchaser on the
Remittance Date relating to the next Servicing Cut-Off Date after such amounts
are received, or shall be applied against any amounts then owing by Purchaser to
Seller in connection with this Agreement.
(b) PAYMENTS BY SELLER OF CERTAIN EXPENSES. In the event that
Seller has funded sums in relation to the Mortgage Loans, which sums were used
to pay for utilities, taxes, insurance or other matters relating to the
Mortgaged Property, Purchaser agrees that, except in its capacity as interim
servicer and before the Servicing Termination Date, Seller is under no duty or
obligation to continue funding such sums and Seller may cease or refuse to fund
any such sums at any time. In such event, Seller will not be responsible for the
unpaid expenses or any other costs and expenses resulting from any such action.
In the event that, prior to the Servicing Transfer Date, Seller, in its capacity
as interim servicer, elects not to continue funding such sums relating to any
Mortgage Loan(s), Seller shall provide notice of this fact to Purchaser, at
which point Purchaser may notify Seller in writing to pay any such sums.
Purchaser's delivery of such notice to Seller shall be deemed automatically to
be an acceptance of such Mortgage Loan(s) as of the date of delivery of such
notice to Seller and Purchaser shall be responsible for any reimbursement to
Seller pursuant to Section 2.3(d) or Section 3.6.
(c) CHARACTERIZATION OF PAYMENTS. The characterization of
payments received as principal or interest on a Mortgage Loan shall be
determined by Seller in its reasonable discretion in accordance with the terms
of the Mortgage Note and the Mortgage.
(d) POST-CLOSING ADJUSTMENTS. If the amounts required to be
paid or credited pursuant to this Section 2.3 cannot be precisely determined by
the Closing Date, or were not determined accurately on or before the Closing
Date, Seller and Purchaser shall make the necessary determination or
redetermination promptly following the Closing and Seller and Purchaser shall
make the necessary adjustments as of 30 days after the Closing Date. Forty-five
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(45) days after the Closing Date, each party shall remit to the other those
payments due to the other party under this Section 2.3 and shall deliver to the
other an accounting of the amounts so remitted for the benefit of the party
entitled to the same.
ARTICLE III
INTERIM SERVICING OF THE MORTGAGE LOANS
---------------------------------------
SECTION 3.1 TRANSFER OF SERVICING TO PURCHASER; INTERIM SERVICING.
Until the Closing Date, the servicing obligations, liabilities, and
responsibilities with respect to the Mortgage Loans shall be the responsibility
of Seller. On the Closing Date, all servicing rights and responsibilities with
respect to the Mortgage Loans shall be released to Purchaser. Seller shall
continue to service the Mortgage Loans, on Purchaser's behalf as interim
servicer, (i) for a fee equal to __________ percent (____%); PROVIDED, that
Seller shall also be entitled to retain, as additional fees for its services as
interim servicer, late fees, assumption fees, check return fees and other fees
customarily retained by servicers. Seller shall be entitled to retain the
applicable interim servicing fee from collections on the Mortgage Loans. Seller
shall conduct its interim servicing activities in accordance with the policies
and procedures Seller utilizes in servicing mortgage loans for its own portfolio
and in accordance with this Article III.
SECTION 3.2 SERVICING REMITTANCES. Seller shall remit to Purchaser, by
wire transfer, on each Remittance Date during the Interim Servicing Period all
payments of any kind received in respect of a Mortgage Loan which payments came
due after the Determination Date but before the Servicing Cut-Off Date.
SECTION 3.3 ADVANCES. Seller shall not be required, as interim
servicer, to make any servicing advance on any Mortgage Loan unless Seller has
concluded that such advance will be reimbursable from payments in respect of the
Mortgage Loans, including by netting such advances from the final remittance
described in Section 3.6 below. In the event that, prior to the Servicing
Transfer Date, Seller, in its capacity as interim servicer, elects not to make a
servicing advance on any Mortgage Loan(s), Seller shall provide notice of this
fact to Purchaser, at which point Purchaser may notify Seller in writing to make
such servicing advance on behalf of Purchaser. Purchaser's delivery of such
notice to Seller shall be deemed automatically to be an acceptance of such
Mortgage Loan(s) as of the date of delivery of such notice to Seller and
Purchaser hereby agrees that Seller shall be able to net such advances from the
final remittance described in Section 3.6 below or to otherwise recover such
advances from Purchaser if there are not sufficient funds available pursuant to
Section 3.6 to recover such advances.
SECTION 3.4 REPORTING REQUIREMENTS. Seller shall be responsible for all
Internal Revenue Service and other tax agency reporting requirements with
respect to the Mortgage Loans until the Servicing Transfer Date. Seller shall
file with the taxing authorities within the time periods required by law all
year-to-date 1099s and other similar reporting documents up to the Servicing
Transfer Date, and Purchaser shall be responsible for all such reporting
requirements after the Servicing Transfer Date. Prior to the Servicing Transfer
Date, Seller, in its capacity as interim servicer, shall, on or before the
twentieth day of each month until the Servicing Transfer Date, provide Purchaser
with a monthly report regarding delinquencies on the Mortgage Loans
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SECTION 3.5 ESCROW ACCOUNTS. On the Servicing Transfer Date, all escrow
accounts held by or on behalf of Seller for taxes, governmental assessments,
deposits, security deposits, utility deposits, replacement reserves and
insurance, or other funds relating to the Mortgage Loans and all records
relating to such accounts, shall be assigned, transferred and paid over to
Purchaser. All such funds transferred to Purchaser shall be applied by Purchaser
for their designated purposes for the designated Mortgaged Property in
accordance with the applicable Mortgage, contract or lease or pursuant to an
applicable court order, if any. Seller makes no representation or warranty
whether the amounts in any such escrows are the full amounts required to be paid
to Seller under any Mortgage or other contract affecting the related Mortgage
Loan. Purchaser will indemnify, defend and hold Seller harmless from and against
any and all claims, damages, liabilities, costs and expenses (including
attorneys' fees) arising or resulting from or in connection with, or otherwise
relating to such escrow accounts to the extent that (i) Purchaser was in control
of such accounts at the time the act or omission giving rise to the claim,
damage, liability, cost or expense allegedly occurred and (ii) such amounts were
actually assigned to Purchaser. Seller will indemnify, defend and hold Purchaser
harmless from and against any and all claims, damages, liabilities, costs and
expenses (including attorneys' fees) arising or resulting from or in connection
with, or otherwise relating to such escrow accounts to the extent that (i)
Seller was in control of such accounts at the time the act or omission giving
rise to the claim, damage, liability, cost or expense allegedly occurred and
(ii) the cause for such claim, damage, liability, cost or expense is
attributable to the actions of the Seller in its capacity as servicer of the
Mortgage Loans.
SECTION 3.6 REMITTANCE AFTER SERVICING TRANSFER DATE. On or prior to
five Business Days after the Servicing Transfer Date, Seller shall make a final
remittance to Purchaser of payments received on the Mortgage Loans up to and
including the Servicing Transfer Date, from which may be deducted any
unreimbursed advances with respect to the Mortgage Loans or any other amounts
due to Seller.
SECTION 3.7 ADDITIONAL SERVICING COVENANTS.
(a) DELIVERY OF MORTGAGE FILES. As soon as practicable after
the Servicing Transfer Date, Seller shall deliver to Purchaser at Seller's sole
expense, at such location or locations in the United States as may be selected
by Purchaser, such originals of documents in the Mortgage File as were not
delivered at Closing with respect to each Mortgage Loan that remain in the
possession of Seller.
(b) ACCESS TO RECORDS. After the date hereof and ending on the
date that Seller delivers the Mortgage Files for the applicable Mortgage Loan,
Seller shall upon reasonable notice make available to Purchaser, at Purchaser's
sole expense, the Mortgage Files, other than Excluded Documents.
(c) INSURANCE. Until the Servicing Transfer Date, Seller, in
its capacity as interim servicer, will monitor hazard insurance for each
Mortgage Loan and will arrange for the force placement of hazard insurance in
the event that such insurance is not in place for any Mortgage Loan. For each
Mortgage Loan, Seller shall prepare and mail to each hazard and casualty
insurer, and to the writing agent for each flood hazard insurer, for each
applicable Mortgage Loan, a request for an endorsement of the applicable policy
of insurance for the purposes of adding, effective on the Servicing Transfer
Date, Purchaser and its successors and assigns, as the mortgagee or insured
named therein. Seller shall be responsible for the preparation and mailing of
such requests at Seller's sole expense. Notwithstanding the foregoing, in the
event that Seller discovers that any Mortgage Loans are covered under Seller's
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blanket insurance policy, Seller shall promptly provide written notice of such
fact to Purchaser and Purchaser shall be required to obtain its own insurance
coverage for any such Mortgage Loans rather than being added to the existing
policy.
ARTICLE IV
CLOSING
-------
SECTION 4.1 CLOSING. The Closing of the purchase and sale of the
Mortgage Loans shall be held on the Closing Date, at 10:00 a.m., Pacific time,
at the offices of Seller, or such other place as Seller and Purchaser shall
mutually agree.
SECTION 4.2 SELLER'S CLOSING ITEMS. At the Closing, Seller agrees to
execute and deliver or provide (or cause to be delivered and provided) to
Purchaser the following:
(a) For each Mortgage Loan:
(i) original Mortgage Note, duly endorsed without recourse or
representation or warranty of any nature (except as specifically set
forth herein);
(ii) the original recorded Mortgage accompanied by the
original intervening assignments (to the extent possessed by Seller, or
copies thereof, unless such documents are not in Seller's possession),
showing a complete chain of title to Seller;
(iii) to the extent possessed by Seller or reasonably
obtainable by Seller, the originals of all other Collateral Documents,
or if not so possessed, copies thereof but only if Seller possesses
such copies;
(iv) an original Mortgage Assignment in form customary and
appropriate for recording in the land records in the jurisdiction in
which the related Mortgaged Property is located;
(v) a UCC-2 form or its equivalent, assigning to Purchaser
Seller's rights as secured party under any financing statements related
to any Mortgage Loan for which a UCC-1 financing statement is in place
and has not previously been terminated;
(vi) an assignment or other instrument assigning to Purchaser
the rights of Seller under any security for such Mortgage Loan other
than the Mortgage, together with all rights of Seller, if any, arising
out of or in connection with any other document, instrument, property,
collateral or the like delivered to Seller or its predecessor in
interest in connection with such Mortgage Loan and all rights of Seller
arising out of any bankruptcy or foreclosure action or any pending
claim or action for amounts due Seller or its predecessor in interest
in connection with any of the Mortgage Loans (except as otherwise set
forth in this Agreement); and
(vii) such affidavits and similar documents as may be
reasonably requested by Purchaser's title insurer that are customarily
delivered by assignors of mortgages in California;
PROVIDED, HOWEVER, that if the Servicing Transfer Date does not occur
on the Closing Date, then Seller shall only be required to deliver the
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items required by clause (i) above until such time as the Servicing
Transfer Date does occur, at which point Seller shall deliver all of
the remaining items listed in clauses (ii) through (vii) above;
(b) evidence reasonably required by the applicable title
insurer demonstrating that (i) Seller is an entity in good standing
under the laws of the jurisdiction in which it is formed, and (ii)
Seller's execution and delivery of this Agreement and the other
documents delivered pursuant hereto and the consummation of the
transactions contemplated hereby have been fully authorized by all
necessary corporate authority; and
(c) a bill of sale with respect to the Mortgage Notes, the
Mortgages and the Mortgage Files and documents therein, together the
rights of Seller under any security for such Mortgage Loan other than
the Mortgage, together with all rights of Seller, if any, arising out
of or in connection with any other document, instrument, property,
collateral or the like delivered to Seller in connection with such
Mortgage Loan and all rights of Seller arising out of any bankruptcy or
foreclosure action or any pending claim or action for amounts due
Seller or its predecessor in interest in connection with any of the
Mortgage Loans (except as otherwise set forth in this Agreement).
SECTION 4.3 PURCHASER'S CLOSING ITEMS. At the Closing, Purchaser shall
execute and deliver or provide (or cause to be delivered or provided) to Seller
the following:
(a) A certificate of an officer of Purchaser certifying that (i)
Purchaser is an entity in good standing under the laws of the jurisdiction in
which it is formed, and (ii) Purchaser's execution and delivery of this
Agreement and the other documents delivered pursuant hereto and the consummation
of the transactions contemplated hereby have been fully authorized.
(b) Payment of the amounts due other than under Section 2.2, which
payment must be (i) made by a wire transfer of immediately available federal
funds to:
Fidelity Federal Bank, FSB
Via FRB San Francisco
ABA No. 322270369
Attn: Capital Markets
and (ii) received by Seller by no later than 11:00 a.m. (Pacific time) on the
Closing Date.
SECTION 4.4 CONDITIONS TO PURCHASER'S OBLIGATIONS. The obligation of
Purchaser to purchase the Mortgage Loans pursuant to this Agreement is subject
to the fulfillment by Seller on or prior to the Closing Date of each of the
following additional conditions, except to the extent waived in writing by
Purchaser:
(a) Seller shall have delivered or caused to be delivered all the items
that are required to be delivered pursuant to Section 4.2.
(b) All representations and warranties of Seller set forth in Section
6.1 shall be true in all material respects at and as if made on the Closing
Date.
(c) All requisite federal, state and local governmental and regulatory
approvals relating to the transactions contemplated hereby, if any, required to
be obtained by Seller and Purchaser shall have been obtained.
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(d) The Branch Closing and all transactions contemplated to occur at
the Branch Closing shall have occurred or shall occur concurrently herewith.
If all conditions under this Section 4.4 to Purchaser's obligation to complete
the Closing have been satisfied, Purchaser shall be obligated to purchase all of
the Mortgage Loans (except for a Deleted Mortgage Loan withdrawn by Seller prior
to the Closing Date) at the Closing for the Total Purchase Price (as the same
may be adjusted as described herein) regardless of the material breach of any
other provision of this Agreement excluding the representations set forth in
Section 6. 1, including any of the representations or warranties made in Section
6.2, the sole remedies for which are set forth in Article V.
SECTION 4.5 CONDITIONS TO SELLER'S OBLIGATIONS. The obligation of
Seller to sell the Mortgage Loans pursuant to this Agreement is subject to the
fulfillment by Purchaser on or prior to the Closing Date of each of the
following additional conditions, except to the extent waived in writing by
Seller:
(a) Purchaser shall have paid and shall have executed and delivered, or
caused to be delivered, all the items specified in Section 4.3 in accordance
with the terms of Section 4.3.
(b) All requisite federal, state and local governmental and regulatory
approvals relating to the transactions contemplated hereby, if any, required to
be obtained by Purchaser and Seller shall have been obtained.
(c) The Branch Closing and all transactions contemplated to occur at
the Branch Closing shall have occurred or shall occur concurrently herewith.
SECTION 4.6 TRANSFER AND RECORDATION TAXES; OTHER COSTS. At or prior to
Closing, Purchaser shall pay all transfer, filing and recording fees and taxes,
costs and expenses, and any state, county or city documentary taxes, if any,
relating to the filing or recording of any document or instrument contemplated
hereby or the sale or assignment of the Mortgage Loans. Purchaser shall be
solely responsible for the payment of any and all sales taxes, costs of title
insurance premiums, survey costs, and other expenses of title examination.
Seller and Purchaser shall sign and deliver on the Closing Date (or on such
earlier date as may be necessary to obtain approval if required in advance of
the Closing Date) all transfer tax and related forms reasonably required by the
other party or required by applicable law. Regardless of whether the
transactions contemplated hereunder are completed, except as otherwise provided
in Section 8.11, Purchaser shall pay all of its expenses in negotiating and
carrying out its obligations under this Agreement and the transactions
contemplated hereby, including its due diligence costs and the costs of its due
diligence providers, its counsel and title insurance.
ARTICLE V
DUE DILIGENCE AND REMEDIES FOR DEFECTIVE MORTGAGE LOANS
-------------------------------------------------------
SECTION 5.1 DUE DILIGENCE GUIDELINES.
(a) DUE DILIGENCE ACCESS. Purchaser has been afforded full
access and an adequate opportunity to review all Due Diligence Materials and to
otherwise perform Purchaser's desired due diligence with respect to the Mortgage
Loans. By execution of this Agreement, Purchaser hereby acknowledges that its
due diligence activities have been completed. Except with the written consent of
Seller, which consent shall not be unreasonably withheld, Purchaser and
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Purchaser's designated persons shall not contact, discuss, respond to, inquire
or provide information to any Mortgagor, guarantor of any Mortgage Loan or any
other Person prior to the Closing Date.
(b) INDEMNIFICATION. Purchaser shall indemnify, hold harmless
and defend Seller against, and hold Seller harmless from, all Claims and
liabilities resulting from Purchaser's activities under this Section 5.1.
(c) NO REIMBURSEMENT. No amounts that have been expended by
Purchaser for due diligence shall be reimbursed to Purchaser or credited to or
against the Total Purchase Price.
SECTION 5.2 PURCHASER'S CLAIM OF A DEFECTIVE MORTGAGE LOAN. In order to
make a claim that a Mortgage Loan is a Defective Mortgage Loan based upon a
breach of a representation and warranty under Section 6.2, Purchaser must
execute and deliver a Certificate of Defect for such Mortgage Loan on or before
the Survival Termination Date. If Purchaser fails to deliver such Certificate of
Defect within the applicable period, then such failure shall terminate and
extinguish any rights of Purchaser to submit a Certificate of Defect, to require
Seller to cure any defect in, delete, substitute for, or repurchase, such
Mortgage Loan as a result of such breach of a representation or warranty under
Section 6.2.
SECTION 5.3 DELETION OR SUBSTITUTION AT SELLER'S OPTION. If Seller
reasonably believes that (a) there is a breach of a representation or warranty
of Seller with respect to a Mortgage Loan or (b) the sale of a Mortgage Loan
pursuant hereto violates any law, rule, regulation or court order applicable to
Seller or the Mortgage Loan, Seller shall provide Purchaser with notice of same.
If such notice is given by Seller prior to the Closing, the Mortgage Loan shall
be withdrawn (unless such notice is given under clause (a) and Purchaser waives
such breach in writing within five Business Days after receipt of such notice
from Seller) and the Total Purchase Price shall be reduced by the Repurchase
Price for such Mortgage Loan on the date of such withdrawal. No such notice
shall be effective following the Closing unless such notice is given pursuant to
clause (b) of the first sentence of this Section 5.3.
SECTION 5.4 SUBSTITUTION PROCEDURE. In the event Seller elects to
substitute for a Mortgage Loan, Seller shall send to Purchaser a Substitution
Notice which (i) identifies the Substitute Mortgage Loans being substituted and
(ii) calculates the Substitution Adjustment. In the event the Substitution
Adjustment is a negative number, Seller shall pay such Substitution Adjustment
to Purchaser if such substitution is made after the Closing Date or shall reduce
the Total Purchase Price correspondingly if such substitution is made prior to
the Closing Date. In the event the Substitution Adjustment is a positive number,
Purchaser shall pay such Substitution Adjustment to Seller if such substitution
is made after the Closing Date or shall increase the Total Purchase Price
correspondingly if such substitution is made prior to the Closing Date. Seller
shall deliver to Purchaser all items required under Section 4.2 with respect to
such Substitute Mortgage Loan and Purchaser shall convey all of its right, title
and interest in and to the Deleted Mortgage Loan to Seller and shall make all
deliveries and take all other actions on the same terms and conditions under
which Seller had conveyed such Mortgage Loan to Purchaser. If Purchaser receives
any amounts on account of such Mortgage Loan after its conveyance to Seller that
are payable to Seller pursuant to the terms of this Agreement, it shall promptly
forward such sums to Seller. If Seller substitutes a Substitute Mortgage Loan
for a Defective Mortgage Loan, the deletion date for the Defective Mortgage Loan
and the substitution date of the Substitute Mortgage Loan (which shall be the
same date) shall be specified in such Substitution Notice and shall be a date
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occurring on or before the date three Business Days following the date of the
relevant Substitution Notice.
SECTION 5.5 SELLER'S ELECTIONS FOR CLAIM OF DEFECTIVE MORTGAGE LOAN.
(a) By no later than five Business Days following its receipt
of a Certificate of Defect timely given under Section 5.2 that alleges a
material breach of a representation or warranty, Seller shall notify Purchaser
(A)(x) that Seller disputes (1) that the alleged breach exists, (2) that the
alleged breach is properly the subject of a Certificate of Defect pursuant to
this Agreement, (3) that the breach is material or (4) that the breach
materially and adversely affects the value of the Mortgage Loan, and (y) of the
basis for Seller's position; (B) that Seller will attempt to cure such breach
within the Cure Period or (C) that Seller deletes such Mortgage Loan and elects
to repurchase the Mortgage Loan to which such Certificate of Defect relates.
(b) If Seller fails to make the election specified in
paragraph (a) of this Section 5.5 for a Mortgage Loan before the expiration of
the applicable five Business Day period, then Seller shall be deemed to have
elected to delete such Defective Mortgage Loan. In such event, Seller shall be
required to repurchase such Mortgage Loan pursuant to Section 5.6.
SECTION 5.6 REPURCHASE OF MORTGAGE LOANS. In the event Purchaser timely
submits a Certificate of Defect under Section 5.2, Seller has the option (unless
it disputes the claims made in the Certificate of Defect) to cure such breach
within the time periods set forth herein. In the event Seller neither disputes
the claims made in such Certificate of Defect nor provides notice that it will
cure such breach, Seller shall repurchase such Defective Mortgage Loan for the
applicable Repurchase Price. In such event, Purchaser shall convey all of its
right, title and interest in and to the repurchased Deleted Mortgage Loan to
Seller and shall make all deliveries and take all other actions on the same
terms and conditions under which Seller had conveyed such Mortgage Loan to
Purchaser. If Purchaser receives any amounts on account of such Mortgage Loan
after its conveyance to Seller that are payable to Seller pursuant to the terms
of this Agreement, it shall promptly forward such sums to Seller.
SECTION 5.7 FAILURE TO CURE. If Seller has given Purchaser notice of
Seller's election to attempt to cure a breach pursuant to Section 5.5(a) but has
not cured such breach by the end of the applicable Cure Period, Seller shall be
deemed to have elected delete such Defective Mortgage Loan and to repurchase
such Mortgage Loan pursuant to Section 5.6.
SECTION 5.8 POST-CONVEYANCE DEFECTS. If a Defective Mortgage Loan has
any defect (other than a defect resulting from an action or omission of Seller,
or its predecessors in interest) that did not exist when such Mortgage Loan was
conveyed to Purchaser, such Mortgage Loan shall not be subject to deletion,
substitution or repurchase as a Defective Mortgage Loan as a result of any such
defect.
SECTION 5.9 WITHDRAWAL OF MORTGAGE LOAN. Notwithstanding any election
by Seller, in response to the submission by Purchaser of a Certificate of Defect
to cure or remediate any breach of a representation and warranty, Seller shall
have the right at its sole option to withdraw a Mortgage Loan prior to the
Closing Date (subject to Purchaser's right to withdraw such Certificate of
Defect).
SECTION 5.10 CREATION OF MORTGAGE LOAN SCHEDULE. On or before the
Business Day preceding the Closing Date, Seller shall prepare the Mortgage Loan
Schedule and shall deliver it to Purchaser for Purchaser's review and
confirmation. The Mortgage Loan Schedule shall, among other things, identify for
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each Mortgage Loan that is not a Deleted Mortgage Loan, the Unpaid Principal
Balance.
SECTION 5.11 SOLE REMEDY. The provisions of this Article V constitute
Purchaser's sole and exclusive remedies for breaches of Seller's representations
and warranties under Sections 6.2.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
------------------------------
SECTION 6.1 REPRESENTATIONS AND WARRANTIES RESPECTING SELLER. Seller
represents, warrants and covenants to Purchaser that on the date hereof or as of
such date specifically provided herein:
(a) DUE ORGANIZATION AND AUTHORITY. Seller is a savings
association duly organized, validly existing and in good standing under the laws
of the United States of America and has all licenses necessary to carry on its
business as now being conducted and is licensed, qualified and in good standing
in each state where a Mortgaged Property is located, if the laws of such state
require licensing or qualification in order to conduct business of the type
conducted by Seller, and in any event Seller is in compliance with the laws of
any such state to the extent necessary to ensure the enforceability of the
related Mortgage Loan and to provide the servicing of such Mortgage Loan; Seller
has the full corporate power, authority and legal right to acquire, transfer and
convey the Mortgage Loans and to execute and deliver this Agreement and to
perform in accordance with such agreements; the execution, delivery and
performance of this Agreement (including all instruments of transfer to be
delivered pursuant to this Agreement) by Seller and the consummation of the
transactions contemplated hereby have been duly and validly authorized; this
Agreement and all agreements contemplated hereby evidence the valid, legal,
binding and enforceable obligation of Seller, subject to bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting the
rights of creditors and to general principles of equity, regardless of whether
such enforcement is sought in a proceeding in equity or at law; and all
requisite corporate action has been taken by Seller to make this Agreement and
all agreements contemplated hereby valid and binding upon Seller in accordance
with their terms.
(b) ORDINARY COURSE OF BUSINESS. The consummation of the
transactions contemplated by this Agreement are in the ordinary course of
business of Seller, and the transfer, assignment and conveyance of the Mortgage
Notes and the Mortgages by Seller pursuant to this Agreement are not subject to
the bulk transfer or any similar statutory provisions in effect in any
applicable jurisdiction.
(c) NO CONFLICTS. Neither the execution and delivery of this
Agreement, the acquisition of the Mortgage Loans by Seller, the sale of the
Mortgage Loans to Purchaser or the transactions contemplated hereby to be
performed by Seller, nor the fulfillment of or compliance with the terms and
conditions of this Agreement by Seller, will conflict with or result in a breach
of any of the terms, conditions or provisions of Seller's charter or by-laws or
any legal restriction or any agreement or instrument to which Seller is now a
party or by which it is bound, or constitute a default or result in an
acceleration under any of the foregoing, or, subject to applicable regulatory
approval or nonobjection, result in the violation of any law, rule, regulation,
order, judgment or decree to which Seller or its property is subject, or result
in the creation or imposition of any lien, charge or encumbrance that would have
an adverse effect upon any of its properties pursuant to the terms of any
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mortgage, contract, deed of trust or other instrument, or impair (i) the ability
of Purchaser to realize on the Mortgage Loans, (ii) the value of the Mortgage
Loans, or (iii) the ability of Purchaser to realize on any related insurance
policy.
(d) ABILITY TO PERFORM; SOLVENCY. Seller does not believe, nor
does it have any reason or cause to believe, that it cannot perform each and
every covenant contained in this Agreement. Seller is solvent and the sale of
the Mortgage Loans will not cause Seller to become insolvent. The sale of the
Mortgage Loans is not undertaken with the intent to hinder, delay or defraud any
of Seller's creditors.
(e) NO LITIGATION PENDING. There is no action, suit,
proceeding or investigation pending except as described by Seller in writing to
Purchaser or to Seller's actual knowledge threatened against Seller which,
either in any one instance or in the aggregate, would draw into question the
validity of this Agreement or the Mortgage Loans or of any action taken or to be
taken in connection with the obligations of Seller contemplated herein, or which
would be likely to impair materially the ability of Seller to perform under the
terms of this Agreement.
(f) NO CONSENT REQUIRED. No consent, approval, authorization
or order of, or registration or filing with, or notice to any court or
governmental agency or body is required for the execution, delivery and
performance by Seller of or compliance by Seller with this Agreement or the sale
of the Mortgage Loans or the consummation by Seller of the transactions
contemplated by this Agreement, or if required, such approval has been obtained
prior to the Closing Date.
(g) NO COMMISSIONS. Seller has not dealt with any person that
may be entitled to any commission or compensation from Seller or Purchaser in
connection with the execution and delivery of this Agreement.
(h) NO SPECIFIC SOLICITATIONS. From the Closing Date forward,
Seller shall not, directly or indirectly, solicit any Mortgagor for a
refinancing of a Mortgage Loan; provided, however, that a general solicitation
performed by Seller or a Mortgagor's request for credit from Seller other than
as a result of a direct solicitation by Seller shall not violate this provision.
(i) SERVICING HISTORY. All of the Mortgage Loans have been
serviced by Seller during the entire thirty-six (36) month period prior to the
date of this Agreement.
SECTION 6.2 SURVIVING REPRESENTATIONS AND WARRANTIES BY SELLER AS TO
INDIVIDUAL MORTGAGE LOANS. Seller represents, as of the date hereof, as follows:
(a) SOLE OWNER. Seller is the sole owner and holder of such
Mortgage Loan, with full right and authority to sell, assign and transfer such
Mortgage Loan.
(b) NO MODIFICATION OR RELEASE. Except as disclosed in the
Mortgage File, Seller has not modified, satisfied, cancelled or subordinated the
Mortgage Loan in any material respect, nor has Seller released the Mortgaged
Property or any part thereof.
(c) NO SECURITY INTEREST. Seller is transferring such Mortgage
Loan free and clear of any and all liens, pledges, equities, charges, claims or
security interests of any nature encumbering such Mortgage Loan.
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(d) ASSIGNMENT OF MORTGAGE; NOTE ENDORSEMENT. The related
Assignment of Mortgage constitutes the legal, valid and binding assignment of
such Mortgage. The endorsement of each Mortgage Note constitutes the legal,
valid and binding assignment of such Mortgage Note, and together with the
Assignment of Mortgage, legally and validly conveys all right, title and
interest in the subject Mortgage Loan to Purchaser.
(e) EACH HOLDER IS AUTHORIZED TO TRANSACT BUSINESS. To the
extent required under applicable law, each holder of the Mortgage Loan was
authorized to transact and do business in the jurisdiction in which the related
Mortgaged Property is located at all times when it held the Mortgage Loan.
(f) COMPLIANCE WITH APPLICABLE LAWS. Seller has complied with
all federal, state and local laws and regulations affecting the origination,
administration and servicing of the Mortgage Loans in all material respects.
(g) NO WAIVER. Except as may be disclosed in the Mortgage
File, Seller has not waived any material default, breach, violation or event of
acceleration of any of the foregoing, and, pursuant to the terms of the Mortgage
Loan, the related Mortgage or the related Mortgage Note, no Person other than
the holder of such Mortgage Note may declare an event of default or accelerate
the related indebtedness under any such Mortgage Loan, Mortgage or Mortgage
Note.
(h) NO NOTICE OF BANKRUPTCY. Seller has not received any
notice that any Mortgagor is a debtor in any state or federal bankruptcy or
insolvency proceeding.
(i) VALIDITY OF DOCUMENTS. Each Mortgage Loan is the legal,
valid and binding obligation of the maker, Mortgagor, guarantor or other party
executing such document or agreement, enforceable in accordance with its terms,
except as such enforcement may be limited by bankruptcy, insolvency,
reorganization moratorium or other laws relating to or affecting creditors'
rights generally, and by general principles of equity (regardless of whether
such enforcement is considered in a proceeding in equity or at law) and there is
no offset, defense, counterclaim or right to rescission with respect to such
Note, Mortgage or other agreements.
(j) PROCEEDS FULLY DISBURSED. The proceeds of the Mortgage
Loan have been fully disbursed and there is no requirement for future advances
thereunder.
(k) FIRST LIEN. The Mortgage constitutes a valid, existing and
enforceable first lien on the Mortgaged Property securing the related Mortgage
Note, and the Mortgaged Property is free and clear of all encumbrances and liens
having priority over the lien of the Mortgage, except for such exceptions as are
set forth in paragraph (c) below. The Mortgaged Property consists of Multifamily
Real Property situated in the state of California.
(l) TITLE INSURANCE. Each Mortgage File contains an ALTA or
CLTA policy of title insurance, or equivalent coverage customarily approved by
institutional investors in the jurisdiction in which the related Mortgaged
Property is located, from a title insurance company qualified to do business in
the state of California. Such title policy is in an amount not less than the
original principal amount of the related Mortgage Loan, and all premiums with
respect thereto have been paid in full. Such policy of title insurance insures
that the Mortgage relating thereto has first priority subject to (i) liens for
real property taxes and assessments that were not then due and payable, (ii)
covenants, conditions and restrictions, rights of way, easements and other
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matters of public record as of the date of recording of such Mortgage acceptable
generally to commercial mortgage lending institutions in the area in which the
related Mortgaged Property is located at the time the Mortgaged Loan was made
and (iii) such other matters to which like properties are commonly subject that
do not, individually or in the aggregate, materially interfere with the current
use of the Mortgaged Property or with the practical realization of the benefits
of the security intended to be provided by the related Mortgage.
(m) DEFAULT, BREACH AND ACCELERATION. There is no default,
breach, violation or event of acceleration existing under the related Mortgage
or the related Mortgage Note and no event (other than payments due) which, with
the passage of time or with notice and the expiration of any grace or cure
period, would constitute a default, breach, violation or event of acceleration.
(n) APPRAISAL. The Mortgage File contains an appraisal of the
related Mortgaged Property which appraisal is signed by an appraiser who, to
Seller's knowledge, had no interest, direct or indirect in the Mortgaged
Property or in any loan made on the security thereof, and whose compensation is
not affected by the approval or disapproval of the Mortgage Loan.
(o) NO CONDEMNATION. There is no proceeding pending, or to
Seller's knowledge threatened, for the partial or total condemnation of the
Mortgaged Property.
(p) TAXES, ASSESSMENTS AND OTHER CHARGES. As of the date
hereof, there are no delinquent and unadvanced taxes, (ii) delinquent
governmental assessments, (iii) delinquent water, sewer or municipal charges, or
(iv) delinquent ground rents.
(q) MORTGAGE PROVISIONS. The Mortgage contains provisions,
which, at the time of origination, were customary such as to render the rights
and remedies of the holder thereof adequate for foreclosure against the
Mortgaged Property; enforceable in accordance with their respective terms,
subject to bankruptcy, insolvency, reorganization, moratorium and other laws of
general application affecting the rights of creditors and to general principles
of equity, regardless of whether such enforcement is sought in a proceeding in
equity or at law.
(r) CONDITION OF MORTGAGED PROPERTY. The Mortgaged Property
was in satisfactory condition at the time of origination of the Mortgage Loan;
provided that no representation or warranty is made with respect to compliance
with the Americans with Disabilities Act of 1990 (42 U.S.C. Section 126 et
seq.).
(s) MECHANICS LIENS. Except as noted in the title insurance
report or the title insurance policy for a Mortgaged Property, at the time of
origination, to Seller's knowledge the Mortgaged Property was free and clear of
all mechanics liens and no rights were outstanding that under law would give
rise to any such liens.
(t) DESCRIPTION OF MORTGAGE LOANS. The description of each
Mortgage Loan set forth in the Supplemental Mortgage Loan Schedule is true,
complete and correct in all material respects as of the date set forth therein;
PROVIDED, however, that the actual number of units may vary from the number of
units.
(u) NON-ACCRUAL STATUS. None of the Mortgage Loans are on a
non-accrual basis.
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(v) MORTGAGOR REQUESTS FOR DOCUMENTATION. Seller will use its
best efforts to respond to all requests made by any Mortgagor for copies of, or
other assistance with respect to, documentation relating to the servicing of
such Mortgagor's Mortgage Loan prior to the Servicing Transfer Date.
SECTION 6.3 REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser
represents and warrants to Seller that on the date hereof and as of the Closing
Date or as of such date specifically provided herein:
(a) DUE ORGANIZATION AND AUTHORITY. Purchaser is a savings
association duly organized, validly existing, and in good standing under the
laws of the United States of America, Purchaser has the full corporate power and
authority to acquire the Mortgage Loans and to execute and deliver this
Agreement and to perform in accordance with such agreements. The execution,
delivery and performance of this Agreement by Purchaser and the consummation of
the transactions contemplated hereby have been duly and validly authorized by
all requisite corporate action. Assuming the due authorization, execution and
delivery of this Agreement by Seller, this Agreement and all agreements
contemplated hereby evidence the valid, legal and binding obligation of
Purchaser enforceable against it in accordance with their respective terms,
subject to bankruptcy, insolvency, reorganization, moratorium and other laws of
general application affecting the rights of creditors and to general principles
of equity, regardless of whether such enforcement is sought in a proceeding in
equity or at law.
(b) NO CONFLICTS. Neither the execution and delivery of this
Agreement by Purchaser, the acquisition of the Mortgage Loans by Purchaser, or
any other transactions contemplated hereby to be performed by Purchaser, nor the
fulfillment of or compliance with the terms and conditions of this Agreement by
Purchaser, will conflict with or result in a breach of any of the terms,
conditions or provisions of Purchaser's charter or by-laws or any legal
restriction or any agreement or instrument to which Purchaser is now a party or
by which it is bound, or constitute a default or result in an acceleration under
any of the foregoing, or result in the violation of any law, rule, regulation,
order, judgment or decree to which Purchaser, or its property is subject, or
result in the creation or imposition of any lien, charge or encumbrance with the
result that any of the foregoing would have a material adverse effect upon the
financial condition of Purchaser or its ability to carry out the transactions
contemplated by this Agreement.
(c) NO LITIGATION PENDING. Except as disclosed by Purchaser in
writing to Seller, there is no action, suit, proceeding or investigation
pending, or to Purchaser's knowledge threatened, against Purchaser which, either
in any one instance or in the aggregate, would draw into question the validity
of this Agreement or of any action taken or to be taken in connection with the
obligations of Purchaser contemplated herein, or which would be likely to impair
materially the ability of Purchaser to perform under the terms of this
Agreement.
(d) NO CONSENT REQUIRED. No consent, approval, authorization
or order of, or registration or filing with, or notice to any court or
governmental agency or body, is required for the execution, delivery and
performance by Purchaser, of or compliance by Purchaser with this Agreement or
the purchase of the Mortgage Loans or the consummation by Purchaser of the
transactions contemplated by this Agreement, or if required, such consent,
approval, authorization, order, registration or filing has been or will be
obtained or made prior to the required or applicable date.
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(e) NO COMMISSIONS. Purchaser has not dealt with any person
that may be entitled to any commission or compensation from Purchaser or Seller
in connection with the execution and delivery of this Agreement.
SECTION 6.4 TERMINATION OF REPRESENTATIONS AND WARRANTIES. Each of the
representations and warranties in Sections 6.1 and 6.2 shall survive the
Closing. The representations and warranties in Section 6.1 shall terminate and
be of no further force or effect on the Survival Termination Date. The
representations and warranties in Section 6.2 as to a particular Mortgage Loan
shall terminate and be of no further force or effect on the earlier of (a) the
Survival Termination Date and (b) the occurrence of a Termination Event relating
to such Mortgage Loan.
SECTION 6.5 KNOWLEDGE OR RELIANCE. For purposes of this Article VI:
(a) The term "to Seller's actual knowledge," or "to Seller's
knowledge" means that the officers of Seller having responsibility for the
origination of Mortgage Loans have no actual knowledge or notice that such
representation or warranty is inaccurate or incomplete, without any independent
investigation and have no knowledge of any facts or circumstances that would
render reliance thereon unjustified without further inquiry.
(b) The term "in reliance on," means that Seller has examined
and relied in whole or in part upon the certificate, report, opinion or other
referenced document; that the information contained in such document is
sufficient to support accurately and in all material respects the substance of
the applicable representation or warranty and that Seller is under no obligation
to independently verify the information contained in such document. It is
understood that Seller's reliance must be commercially reasonable and consistent
with the standard of care exercised by prudent lending institutions originating
residential mortgage loans.
SECTION 6.6 DEFECTS COVERED BY TITLE INSURANCE. Notwithstanding
anything to the contrary contained in this Agreement, Purchaser shall not be
entitled to deliver a Certificate of Defect for a Mortgage Loan to the extent
that Purchaser is entitled to assert a valid claim under either a title
insurance policy or any attorney's title certification with respect to the loss
caused by such breach, and in such event any such representation or warranty
shall be deemed not to have been made by Seller. Purchaser shall be deemed not
to have a valid claim under a title insurance policy or attorney's certification
if (i) in the case of a title insurance policy, the title insurer that issued
such policy has generally stopped paying valid claims under other title policies
issued by such company or (ii) in the case of any attorney's title
certification, the attorney who issues such certification is financially unable
to satisfy any claims under such attorney's title certification.
SECTION 6.7 THIRD PARTY REPORTS. Any appraisals, structural reports,
environmental site assessments or other third-party reports or expert opinions
that are included in the Due Diligence Materials or otherwise provided by Seller
to Purchaser have been prepared for Seller by the experts named therein and have
been furnished to Purchaser solely for Purchaser's convenience. No
representations, express or implied, are being made by Seller, or any of its
employees, with respect to the content, suitability for any purpose, accuracy,
truthfulness or completeness of any such reports. Any reliance upon such reports
shall be at the sole risk of Purchaser.
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ARTICLE VII
ADDITIONAL COVENANTS OF PURCHASER AND SELLER
--------------------------------------------
SECTION 7.1 ADDITIONAL PURCHASER COVENANTS.
(a) CONFORMITY TO LAW. Through the Survival Termination Date,
Purchaser shall abide by all applicable state and federal laws, rules and
regulations regarding the preservation and maintenance of all documents and
records relating to the Mortgage Loans purchased hereunder, including the length
of time such documents and records are to be retained.
(b) INSPECTION BY SELLER. After the transfer of documents or
files to Purchaser pursuant to the terms of this Agreement, Purchaser agrees
that Seller, at Seller's sole expense, shall have the continuing right, at
reasonable intervals and for reasonable business purposes, as set forth in
writing to Purchaser, to use, inspect and make extracts from or copies of any
such documents or records transferred by Seller to Purchaser, upon Seller's
reasonable notice to Purchaser and at the offices of Purchaser.
(c) NOTICE OF LITIGATION. Purchaser shall promptly notify
Seller of any Claim or litigation asserted or filed, or threatened to be filed,
by any Person against Seller that arises from or relates to any of the Mortgage
Loans.
SECTION 7.2 ADDITIONAL SELLER COVENANTS.
(a) NOTICE OF LITIGATION. Seller shall promptly notify
Purchaser of any Claim or litigation asserted or filed, or threatened to be
filed, by any Person against Seller that arises from or relates to any of the
Mortgage Loans.
(b) CONVERSION TO PURCHASER'S DATA PROCESSING SYSTEM. Seller
shall cooperate with Purchaser and respond to reasonable requests of Purchaser
relating to the conversion of the Mortgage Loans onto the data processing system
of Purchaser; provided that Purchaser shall pay all expenses of such conversion.
(c) ACCESS TO MICROFICHE FILES. Seller shall cooperate with
Purchaser and will promptly comply with Purchaser's reasonable requests for
access to microfiche copies of documentation relating to the Mortgage Loans.
ARTICLE VIII
MISCELLANEOUS
-------------
SECTION 8.1 MERGER OR CONSOLIDATION OF THE PARTIES. Any Person into
which either party may be merged or consolidated, or any corporation resulting
from any merger, conversion or consolidation to which either party shall be a
party, or any Person succeeding to the business of either party, shall be the
successor of such party hereunder, without the execution or filing of any paper
or any further act on the part of any of the parties hereto anything herein to
the contrary notwithstanding.
SECTION 8.2 NOTICES. All demands, notices and communications hereunder
shall be in writing and shall be deemed to have been duly given if (i) mailed by
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first class mail; (ii) mailed by registered or certified mail, return receipt
requested; (iii) by facsimile transmission; (iv) by overnight courier or
messenger or by other generally accepted means, when received by the other party
at the address as follows:
(i) if to Seller:
FIDELITY FEDERAL BANK, A FEDERAL SAVINGS BANK
4565 Colorado Boulevard
Los Angeles, California 90039
Attention: Myron Mueller and Ron Alexander
With a copy to:
FIDELITY FEDERAL BANK, A FEDERAL SAVINGS BANK
4565 Colorado Boulevard
Los Angeles, California 90039
Attention: David E. Cher, Esq.
(ii) if to Purchaser:
FIRST FEDERAL BANK OF CALIFORNIA
401 Wilshire Boulevard
Santa Monica, California 90401
Attention: Shannon Millard
With a copy to:
FIRST FEDERAL BANK OF CALIFORNIA
401 Wilshire Boulevard
Santa Monica, California 90401
Attention: Ann E. Lederer, Esq.
or such other address as may hereafter be furnished to the other party by like
notice. Any such demand, notice or communication hereunder shall be deemed to
have been received on the date delivered to or received at the premises of the
addressee (as evidenced, in the case of registered or certified mail, by the
date noted on the return receipt).
SECTION 8.3 COUNTERPARTS. This Agreement may be executed simultaneously
in any number of counterparts. Each counterpart shall be deemed to be an
original, and all such counterparts shall constitute one and the same
instrument.
SECTION 8.4 GOVERNING LAW. The Agreement shall be construed in
accordance with the laws of the State of California and the obligations, rights
and remedies of the parties hereunder shall be determined in accordance with the
laws of the State of California.
SECTION 8.5 INTENTION OF THE PARTIES. It is the intention of the
parties that Purchaser is purchasing, and Seller is selling the Mortgage Loans
and not a debt instrument of Seller or another security. Accordingly, the
parties hereto each intend to treat the transaction for Federal income tax
purposes as a sale by Seller, and a purchase by Purchaser, of the Mortgage
Loans. Purchaser shall have the right to review the Mortgage Loans and the
related Mortgage Files to determine the characteristics of the Mortgage Loans
which shall affect the Federal income tax consequences of owning the Mortgage
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Loans and Seller shall cooperate with all reasonable requests made by Purchaser
in the course of such review. It is the understanding and intention of the
parties that Purchaser is (i) purchasing the Mortgage Loan from Seller, and (ii)
not originating or funding the origination of such Mortgage Loan. Nothing
contained in this Agreement shall constitute Purchaser and Seller as members of
any partnership, joint venture, association, syndicate, unincorporated business
or other separate entity, shall be construed to impose any liability as such on
Purchaser or Seller, or shall constitute a general or limited agency or be
deemed to confer on Purchaser or Seller or any express, implied or apparent
authority to incur any obligation or liability on behalf of the other.
SECTION 8.6 SUCCESSORS AND ASSIGNS; ASSIGNMENT OF PURCHASE AGREEMENT.
This Agreement shall bind and inure to the benefit of and be enforceable by
Seller and Purchaser and the respective successors and assigns of Seller and
Purchaser. Neither this Agreement nor any right or obligation hereunder may be
assigned or delegated except with the prior written consent of the other party
hereto, which consent shall not unreasonably be withheld; PROVIDED, however,
that the foregoing shall nor prohibit or require consent of the other party for
an assignment by operation of law as a result of a merger or consolidation.
SECTION 8.7 INTEGRATION; WAIVERS AND AMENDMENTS. This Agreement
supersedes all prior discussions and agreements between Seller and Purchaser
with respect to the purchase of the Mortgage Loans and other matters contained
herein. No term or provision of this Agreement may be amended, waived or
modified unless such amendment, waiver or modification is in writing and signed
by the party against whom such waiver or modification is sought to be enforced.
SECTION 8.8 EXHIBITS. The exhibits to this Agreement are hereby
incorporated and made a part hereof and are an integral part of this Agreement.
SECTION 8.9 GENERAL INTERPRETIVE PRINCIPLES. For purposes of this
Agreement, except as otherwise expressly provided or unless the context
otherwise requires:
(a) the terms defined in this Agreement have the meanings
assigned to them in this Agreement and include the plural as well as the
singular, and the use of any gender herein shall be deemed to include the other
gender;
(b) references herein to "Articles," "Paragraphs," and other
subdivisions without reference to a document are to designated Articles,
Paragraphs and other subdivisions of this Agreement;
(c) reference to a Paragraph without further reference to an
Article is a reference to such Paragraph as contained in the same Article in
which the reference appears, and this rule shall also apply to Paragraphs and
other subdivisions;
(d) the words "herein," "hereof," "hereunder" and other words
of similar import refer to this Agreement as a whole and not to any particular
provision; and
SECTION 8.10 PROTECTION OF CONFIDENTIAL INFORMATION.
(a) Purchaser shall keep all information obtained by it and
its officers, directors, employees, agents, attorneys, accountants or other
representatives concerning the business, properties and operations of Seller
confidential and Purchaser will use, and will cause its officers, directors,
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employees, agents, attorneys, accountants or other representatives to use such
information only in connection with this Agreement and the transactions
contemplated thereby; PROVIDED that Purchaser shall be permitted to disclose
said information to the extent that disclosure thereof is required by court
order or by law.
(b) Purchaser shall keep confidential and shall not divulge to
any party, without Seller's prior written consent, the purchase price paid by
Purchaser for the Mortgage Loans and any information pertaining to the Mortgage
Loans or any Mortgagor thereunder, except to the extent that it is appropriate
for Purchaser to do so in working with legal counsel, auditors, taxing
authorities or other governmental agencies.
SECTION 8.11 ATTORNEYS' FEES. If any action is brought by either party
against the other, the prevailing party shall be entitled to recover from the
other party reasonable attorneys' fees paid or incurred in connection with such
action or as required in order to file any necessary applications with any
regulatory agency or agencies for consummation of the Branch Sale Agreement.
23
<PAGE>
IN WITNESS WHEREOF, Seller and Purchaser have caused their names to be
signed hereto by their respective officers thereunto duly authorized as of the
date first above written.
FIDELITY FEDERAL BANK, A FEDERAL SAVINGS
BANK, as Seller
By: /s/ JAMES E. STUTZ
--------------------------------------------
JAMES E. STUTZ
President and Chief Operating Officer
FIRST FEDERAL BANK OF CALIFORNIA, as Purchaser
By: /s/ JAMES P. GIRALDIN
--------------------------------------------
JAMES P. GIRALDIN
Senior Executive Vice President/
Chief Operating Officer
24
<PAGE>
EXHIBIT A
CERTIFICATE OF DEFECT
Pursuant to Article V of that certain Mortgage Loan Purchase Agreement
(the "AGREEMENT") by and between the undersigned as Purchaser and FIDELITY
FEDERAL BANK, A FEDERAL SAVINGS BANK as Seller, dated as of the 7th day of
February 2000, the undersigned hereby certifies to Seller that the Mortgage Loan
identified on the Mortgage Loan Schedule as _________________ is a Defective
Mortgage Loan. All capitalized terms herein shall have the meanings ascribed
thereto in the Agreement.
Material breach of a representation or warranty under Section 6.2.
------------------------------------------------------------------
Subsection(s) claimed to be materially inaccurate:
Detailed description of condition(s) giving rise to the breach. If a
third party report is attached, cite the specific language in such
report that directly relates to the Subsection(s) claimed to be
materially inaccurate:
Evidence of material adverse effect on value of the Mortgage Loan:
Dated the ____ day of _______________ 2000.
PURCHASER
FIRST FEDERAL BANK OF CALIFORNIA
By:
--------------------------------------------
Name
Title
25
<PAGE>
EXHIBIT B
SUBSTITUTION NOTICE
Pursuant to Section 5.4 of that certain Mortgage Loan Purchase
Agreement (the "Agreement") by and between FIRST FEDERAL BANK OF CALIFORNIA,
as Purchaser, and FIDELITY FEDERAL BANK, A FEDERAL SAVINGS BANK, as Seller,
dated as of the 7th day of February, 2000, the undersigned certifies to Seller
as follows:
1. Seller is effecting the substitution of a Substitute Mortgage Loan
for a Defective Mortgage Loan as set forth below.
2. The Substitute Mortgage Loans being substituted are those identified
as ______________.
3. The Repurchase Price for the Defective Mortgage Loans reference in
paragraph 2 of this Substitution Notice is $_________ [SET FORTH CALCULATION OF
REPURCHASE PRICE FOR EACH MORTGAGE LOAN].
4. [The/ __________% of the] unpaid principal balance at this time plus
accrued interest for the Substitute Mortgage being substituted is
$______________________.
5. The Substitution Adjustment is $_____________________ [THE
DIFFERENCE BETWEEN 3 AND 4 STATED AS NEGATIVE OR POSITIVE NUMBER]
SELLER
FIDELITY FEDERAL BANK, A FEDERAL
SAVINGS BANK
By:
--------------------------------------------
Name
Title
26
Exhibit No. 10.8
AGREEMENT TO PURCHASE
ASSETS AND ASSUME LIABILITIES
BY AND BETWEEN
FIDELITY FEDERAL BANK, A FEDERAL SAVINGS BANK
AND
JACKSON FEDERAL BANK
<PAGE>
AGREEMENT TO PURCHASE ASSETS
AND ASSUME LIABILITIES
This Agreement to Purchase Assets and Assume Liabilities ("Agreement")
is made and entered into this 3rd day of February 2000 ("Signature Date"), by
and between JACKSON FEDERAL BANK, a federally chartered savings bank ("Buyer")
and FIDELITY FEDERAL BANK, A FEDERAL SAVINGS BANK, a federally chartered savings
bank ("Fidelity" or "Seller").
RECITALS
--------
A. Buyer desires to acquire certain branch offices and related branch
assets and to assume certain liabilities of the Branches (as defined below)
which Seller is authorized to operate, and Seller desires to transfer such
assets and liabilities of the Branches to Buyer.
B. Buyer and Seller propose to apply to the appropriate regulatory
authorities for permission to effect the purchase and sale of the Branches and
for such other requisite approvals as may be necessary for the consummation of
the transactions contemplated by this Agreement.
C. Buyer and Seller wish to consummate the transaction contemplated by
this Agreement in a timely and efficient manner.
AGREEMENT
---------
In consideration of the foregoing and the representations, covenants
and agreements set forth in this Agreement, and subject to the conditions set
forth herein, Buyer and Seller (the "Parties") hereto agree as follows:
ARTICLE I
DEFINITIONS
-----------
1.1 DEFINITIONS. As used in this Agreement, the following terms have
the definitions indicated:
"ACCOUNT LOANS" shall mean (i) all savings account loans secured by
Deposits and (ii) all checking account lines of credit or overdraft checking
loan balances related to the Deposits which are listed on the books and records
of the Branches.
"ACCRUED INTEREST" means interest on Account Loans and Deposits which
is accrued but unpaid or unposted (as the case may be) through the applicable
date.
"ACH ITEMS" means automated clearing house debits and credits,
including, but not limited to, Social Security payments, federal recurring
payments, and other payments debited and/or credited on a regularly scheduled
basis to or from Deposit accounts pursuant to arrangements between the owner of
the account and a third party directly making the credits or debits.
<PAGE>
"AFFILIATE" of a party means any person, partnership, corporation,
association or other legal entity directly or indirectly controlling, controlled
by or under common control with that party.
"APPRAISER" shall have the meaning set forth in Section 3.1.
"ASSETS" means the Account Loans, Deposit customer relationships, Real
Estate, Fixed Assets, Safe Deposit Boxes, Cash on Hand and Records at the
Branches.
"ATMs" means the automated teller machines located on the premises of
the Branches and includes the security systems associated therewith.
"BLUE JAY/BIG BEAR DEPOSIT PREMIUM PERCENTAGE" means ___%.
"BLUE JAY/BIG BEAR DEPOSITS" means all Deposits at the Blue Jay and Big
Bear Branches.
"BRANCHES" means the branch offices of Seller identified on Schedule
1.1 hereto.
"BRANCH LEASES" means the leases listed on Schedule 1.1 and more
particularly described therein.
"BUSINESS DAY" means any Monday, Tuesday, Wednesday, Thursday, or
Friday that is not a federal or state holiday generally recognized by savings
associations in the state of California.
"CASH ON HAND" means all cash in the vault and in the teller drawers at
the Branches.
"CLOSING" AND "CLOSING DATE" shall have the meanings set forth in
Section 4.1.
"CLOSING PAYMENT" shall have the meaning set forth in Section 4.2.
"DEPOSIT" means any deposit as defined in Section 3(l)(1) of the
Federal Deposit Insurance Act ("FDIA"), as amended, 12 U.S.C. Section
1813(l)(1), maintained at the Branches including, without limitation, the
aggregate balances of all savings accounts with positive balances domiciled at
the Branches, Keogh accounts, "NOW" accounts, other demand instruments,
Retirement Accounts, and all other accounts and deposits, together with Accrued
Interest thereon, if any; provided, that the term "Deposit" shall not include
all or any portion of those balances that are deemed to be (i) accounts subject
to escheatment or (ii) accounts of directors or employees of Seller; (iii)
accounts held by persons not having a residence in, or entities not having a
place of business in, the state of California or (iv) accounts with balances
exceeding $98,000 that are held by institutions, deposit brokers or aggregators.
"DEPOSIT PREMIUM PERCENTAGE" means the Blue Jay/Big Bear Deposit
Premium Percentage or the Fullerton Deposit Premium Percentage, as applicable.
"EMPLOYEES" means all employees at the Branches at any time from the
Signature Date through the Closing.
"ENCUMBRANCES" means any and all mortgages, claims, charges, liens,
encumbrances, easements, restrictions, options, pledges, calls, commitments,
2
<PAGE>
security interests, conditional sales agreements, title retention agreements,
leases and other restrictions of any kind whatsoever.
"ENVIRONMENTAL LAWS" means any federal, state, county or local law or
regulation relating to the environment or any Hazardous Substance.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"FAIR MARKET VALUE" shall mean the aggregate fair market value of the
Real Estate as determined in accordance with Section 3.1.
"FDIC" means the Federal Deposit Insurance Corporation or any successor
thereto.
"FIXED ASSETS" means all furniture, fixtures, equipment and all other
tangible personal property owned by Seller, including without limitation ATMs,
located at the Branches, excluding, however: (i) the Cisco routers and Bay
Networks hub 150s currently maintained at the Branches, and (ii) all computers
and printers located at the Branches.
"FULLERTON BRANCH DEPOSIT PREMIUM PERCENTAGE" means ___%.
"FULLERTON DEPOSITS" means all Deposits at the Fullerton Branch.
"HAZARDOUS SUBSTANCES" means chemicals, pollutants, contaminants,
wastes and substances, in each case, that have been defined as toxic or
hazardous by any environmental agency having jurisdiction over the location of
the Branches, including petroleum, petroleum products, asbestos and
polychlorinated biphenyls.
"INITIAL APPRAISERS" shall have the meaning set forth in Section 3.1.
"LIABILITIES" means all liabilities being assumed by Buyer under
Section 2.3.
"MORTGAGE LOAN PURCHASE AGREEMENT" means a Mortgage Loan Purchase
Agreement substantially in the form attached hereto as Exhibit A, to be entered
into upon determination by Buyer and Seller of the pool of loans to be sold,
relating to the sale by Seller and the purchase by Buyer of multifamily mortgage
loans.
"NEGATIVE BALANCE DEPOSIT" means a Deposit which on the applicable date
has a balance of less than zero.
"NET BOOK VALUE" means the net book value of an asset determined in
accordance with generally accepted accounting principles consistently applied
and as reflected in the books and records of Seller.
"OTS" means the Office of Thrift Supervision or any successor thereto.
"PARTY" means Buyer or Seller, and "Parties" means both Buyer and
Seller.
"PREPAYMENTS" means any expense payments related to the Assets or the
operation of the Branches paid in advance by Seller for which the Closing Date
is before the end of the period for which the expense payment was made
including, but not limited to, payments made for utilities, and real property
taxes and assessments.
3
<PAGE>
"REAL ESTATE" means the real property and improvements thereon
relating to the Branches, including any interest of Seller as lessor with
respect thereto.
"REAL ESTATE AGREEMENT" shall have the meaning set forth in Section
2.1(a).
"RECORDS" means: (i) all open records and original documents, excluding
Seller's counterparts of this Agreement and documents executed in connection
therewith, located at the Branches or in centralized servicing areas pertaining
to the Account Loans and Deposits which are reasonably required for the Buyer to
conduct business and comply in all material respects, with all applicable laws,
regulations, rules and business practices with respect to the Account Loans and
Deposits acquired from Seller pursuant to this Agreement; (ii) all available
account history of all accounts related to Deposits for the current year; (iii)
all signature cards, legal files, Safe Deposit Box files, pending files, Account
Loan agreements, Retirement Account agreements, account disclosures in effect at
the Branches for the current year and for 1999, and computer records and (iv)
all documents relating to the Real Estate in the possession of Seller; provided
that records and documents described in clauses (i) through (iv) in electronic
form shall be limited to the current year's records and documents. Records shall
not include personnel records for Employees at the Branches or documents which
are the subject of attorney-client privilege or constitute attorney work product
which are maintained in Seller's legal department.
"RETIREMENT ACCOUNTS" means individual retirement accounts, including
SEP individual retirement accounts or qualified plans, but does not include
defined benefit retirement plan accounts or self-directed retirement plan
accounts.
"RETURNED ITEMS" shall have the meaning set forth in Section 13.4.
"SAFE DEPOSIT BOXES" shall mean all of the safe deposit boxes domiciled
at the Branches, along with the "nests" associated with those boxes.
"SELLER'S KNOWLEDGE" or any phrase of similar import shall, with
respect to any representation and warranty to the extent made as to the Real
Estate, be limited to the actual knowledge of Lois Peck, the officer of Seller
responsible for such matters, without any requirement of inquiry or
investigation, and with respect to any other matter be limited to the actual
knowledge of executive officers of Seller, after reasonable inquiry of the
officers of Seller having responsibility for the subject matter in question.
"SIGNATURE DATE" means the date set forth as such in the first
paragraph of this Agreement.
"THIRD APPRAISER" shall have the meaning set forth in Section 3.1.
"WITHHOLDING OBLIGATIONS" shall have the meaning set forth in Section
13.12.
ARTICLE II
TERMS OF PURCHASE AND ASSUMPTION
--------------------------------
2.1 PURCHASE AND SALE OF ASSETS.
4
<PAGE>
(a) ASSETS. At the Closing and subject to the terms and
conditions set forth in this Agreement, Seller shall convey, assign and transfer
to Buyer and Buyer shall purchase from Seller all of Seller's right, title and
interest in and to the Assets. In furtherance of, and not in limitation of, the
foregoing, concurrently with execution of this Agreement, Buyer and Seller are
entering into a purchase and sale agreement and joint escrow instructions for
the Real Estate in mutually acceptable form (the "Real Estate Agreement"). In
the event of any conflict between this Agreement and the Real Estate Agreement
as to any matter relating to the Real Estate or the sale or transfer thereof,
the terms of the Real Estate Agreement shall be controlling.
(b) ASSOCIATION NAME AND LOGO. Seller is not selling,
assigning, conveying, transferring or delivering, nor shall Buyer acquire any
rights or interest in or to (i) the names of Seller, or any combination or
derivation thereof, or (ii) any logos, service marks or trademarks of Seller or
any advertising materials or slogans or any similar items used before, on or
after the Closing Date by Seller in connection with its business.
(c) INVESTMENT PRODUCTS. Seller is not assigning, conveying,
transferring or delivering, nor shall Buyer acquire any rights or interest in or
to the right to service and administer nondeposit investment products currently
administered by Gateway Investment Services, Inc
(d) MORTGAGE LOAN PURCHASE AGREEMENT. Buyer and Seller will
use commercially reasonable efforts to determine the pool of loans to be sold
pursuant to, and shall thereupon enter into, the Mortgage Loan Purchase
Agreement, which shall provide for a closing concurrently with, or substantially
concurrently with, the Closing hereunder.
2.2 PURCHASE PRICE. In consideration for the Assets acquired by it
under this Agreement, Buyer shall assume at the Closing the liabilities of
Seller as set forth in Section 2.3, and shall pay to Seller at the Closing an
amount which is the sum of the following, without duplication:
(a) The Net Book Value of the Fixed Assets as of the Closing
Date; plus
(b) The Net Book Value of the Safe Deposit Boxes as of the
Closing Date; plus
(c) The Net Book Value plus Accrued Interest on the Account
Loans as of the Closing Date; plus
(d) A sum equal to the Cash on Hand as of the Closing Date;
plus
(e) The Fair Market Value of the Real Estate plus any
prorations due from and minus any prorations due to Buyer under the Real Estate
Agreement.
2.3 ASSUMPTION OF LIABILITIES.
(a) DEPOSITS. On the Closing Date, subject to the terms and
conditions set forth in this Agreement, Buyer shall (i) assume the liabilities
related to the Deposits as of the Closing Date in accordance with the terms of
such Deposits in effect on the Closing Date; (ii) assume Seller's obligation to
its Deposit customers accruing after the Closing Date in accordance with the
terms of such Deposits in effect on the Closing Date and (iii) be responsible
for modifying the terms of such customer relationships effective as of the
Closing Date as necessary to conform to Buyer's practices.
5
<PAGE>
(b) RELATED ASSETS AND OBLIGATIONS. On the Closing Date,
subject to the terms and conditions set forth in this Agreement, Buyer will also
assume the obligations of Seller to provide all services incidental to the
Deposits including, but not limited to, providing Safe Deposit Boxes, as may be
modified to conform to Buyer's practice.
(c) REIMBURSEMENT FOR DEPOSITS. On the Closing Date, Seller
shall reimburse Buyer for the assumption by Buyer of the liabilities and
obligations relating to the Deposits an amount in immediately available funds
equal to (i) 100% of the aggregate amount of Deposits assumed by Buyer pursuant
to Section 2.3(a) above less (ii) the sum of (A) the product of the Blue Jay/Big
Bear Deposit Premium Percentage and the aggregate amount of Blue Jay/Big Bear
Deposits on the Closing Date and (B) the product of the Fullerton Deposit
Premium and the aggregate amount of Fullerton Deposits on the Closing Date. Such
reimbursement may be made in whole or in part of means of a credit by Buyer to
Seller of the Purchase Price under the Mortgage Loan Purchase Agreement. The
parties agree that the premium reflected in the Deposit Premium Percentage is
attributable to favorable interest rates on the term Deposits acquired. Buyer
and Seller agree that the allocation of the Purchase Price will be made based on
the relative fair market value of the Assets acquired, as required by Section
1060 of the Internal Revenue Code of 1986, as amended, and agree to utilize such
allocation for federal income tax purposes. Such allocation will be consistently
reflected by each Party on their federal income tax returns and similar
documents, including but not limited to Internal Revenue Service Form 8594.
Neither Party shall file any document or assert any position that conflicts or
is inconsistent with such allocation, and each Party agrees to inform the other
promptly upon receipt of any communication from (or forwarding any communication
to) the Internal Revenue Service relating to Form 8594. Each Party shall
cooperate fully with the other in filing Form 8594. Buyer shall prepare the Form
8594 and shall promptly submit it to Seller for approval and to facilitate the
consistent filing of such form by Seller and Buyer.
(d) PRORATIONS. The pro rata amount of SAIF premiums
attributable to the Deposits, to the extent paid in advance by Seller for
periods after the Closing, shall be credited to Seller at the Closing.
Additionally, the pro rata amount of any Prepayments shall be credited to Seller
at the Closing.
(e) NO OTHER DEBT, OBLIGATIONS OR LIABILITIES ASSUMED. It is
understood and agreed that, except as expressly set forth in this Agreement,
Buyer shall not assume or be liable for any of the debts, obligations or
liabilities of Seller of any kind or nature whatsoever including, but not
limited to, any tax or debt, any insurance premium, any liability for unfair
labor practices (including, without limitation, wrongful termination or
employment discrimination) or under the WARN Act, any liability or obligation of
Seller arising out of any threatened or pending litigation, or any liability of
Seller with respect to personal injury or property damage claims arising prior
to the Closing.
ARTICLE III
INSPECTION OF ASSETS AND REAL ESTATE VALUATION
----------------------------------------------
3.1 VALUATION OF REAL ESTATE. Buyer has appointed the Heath Group, and
Seller has appointed Steven Fontes with respect to the Blue Jay and Big Bear
Branches and Charles R. Wilson with respect to the Fullerton Branch, each of
whom is an unaffiliated, MAI-certified real estate appraiser, to act as initial
appraisers in determining the fair market value of Seller's interest in the
indicated parcel of Real Estate (the "Initial Appraisers"). Each Initial
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<PAGE>
Appraiser shall conduct a full appraisal of Seller's interest in each the
applicable parcel or parcels of Real Estate and shall render his or her written
opinions of the fair market value of such interests on or before the 21st
calendar day after the Signature Date. In the event the higher of such written
opinions of fair market value, with respect to any parcel of Real Estate, is
equal or less than of 115% of the lower, the two valuations shall be added
together and divided by two and the resulting value shall be deemed to be the
fair market value of such parcel of Real Estate. In the event the higher of such
written opinions of fair market value is greater than 115% of the lower with
respect to any parcel of Real Estate, and the Parties cannot otherwise agree as
to the fair market value of such Real Estate within two Business Days
thereafter, the Initial Appraisers shall, on or before the 30th calendar day
after the Signature Date, jointly select a third, unaffiliated MAI-certified
appraiser (the "Third Appraiser"), who shall conduct a full appraisal of such
parcel of Real Estate and render his or her determination as to fair market
value on or before the 51st calendar day after the Signature Date and whose
determination in writing as to fair market value shall be final so long as it is
within the range of values determined by the Initial Appraisers. In the event
the determination of value of such parcel by the Third Appraiser is outside the
range of values determined by the Initial Appraisers, the fair market value
determined by the Initial Appraiser whose valuation is closer to the value
determined by the Third Appraiser shall be the fair market value of such parcel.
3.2 DUE DILIGENCE REVIEW, INVENTORY AND INSPECTION.
(a) Buyer shall be entitled to conduct due diligence as to the Real
Estate in accordance with the Real Estate Agreement.
(b) Attached hereto as Schedule 3.2(b) is a complete schedule of the
Fixed Assets relating to the Branches, which schedule (i) identifies each item
of Fixed Assets with reasonable particularity, giving the Net Book Value of such
item on Seller's books and describing any Encumbrance thereon and (ii)
identifies each item of such Fixed Assets. Buyer and its agents and
representatives shall be entitled to conduct one or more due diligence
inspections of the Branches within the fifteen (15) day period after the
Signature Date. In the event that any of the Fixed Assets as reported on the
schedule is missing, malfunctioning or in a significantly deteriorated condition
(not including deterioration due to normal wear and tear which does not render
the asset nonusable), Buyer may elect to exclude such property from the transfer
under this Agreement except for any such property which is permanently affixed
to the Real Estate. In the event Buyer shall not have objected in writing to the
condition of the Branches by the end of such fifteen-day period, Buyer shall be
deemed to have accepted such Branches. Such objection, if exercised, shall be
exercised in good faith and shall be based upon a material defect in the
condition of the Branches. At the Closing, Seller shall deliver to Buyer an
updated schedule of Fixed Assets (exclusive of any property excluded from the
Fixed Assets pursuant to this Section 3.2) delivery of which schedule shall
constitute a representation and warranty that such updated schedule is an
accurate schedule of the Fixed Assets of the Branches as of the Closing Date and
shall, except as approved by Buyer, contain all items set forth on the original
Schedule 3.2(b) which are designated as essential by Buyer.
3.3 OTHER DOCUMENTS.
Attached hereto as Schedule 3.3 are true and correct copies of the
following documents relating to the Branches:
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(1) copies of any and all current leases, service and
maintenance contracts or other currently effective contracts or agreements
relating to the Branches or the Fixed Assets to which Seller is a party, or to
which the Branches or Fixed Assets are subject;
(2) copies of all written notices in Seller's possession
regarding the Branches, or the Assets or the Deposits, with respect to violation
of any statutes, rules or regulations of government agencies or violation of any
easements, covenants, conditions or restrictions affecting the Assets, the
Deposits or the Real Estate; and
(3) a list of all Deposits which are subject to any
Encumbrances and, if available, the amount of such Encumbrances.
ARTICLE IV
CLOSING
-------
4.1 CLOSING. The closing of the transactions contemplated by this
Agreement ("Closing") shall take place on March 24, 2000, or at such earlier or
later time and date as the Parties may fix in writing, at such location agreed
to by the parties, if all conditions set forth in Article X have been satisfied
or waived in writing on or before such date. The date the Closing is to be held
is referred to herein as the "Closing Date". The Closing shall be deemed to
occur at 11:59 P.M. Pacific Time on the Closing Date.
4.2 SETTLEMENT. The net amount of cash or other consideration to be
paid to Buyer by Seller pursuant to Section 2.3(c) less the amount owed Seller
by Buyer pursuant to Section 2.2 shall be netted with the amount due the
appropriate party under Section 2.3(d) to determine the closing payment due
Buyer from Seller as of the Closing (the "Closing Payment"). Because the parties
acknowledge that certain amounts to be paid may not be finally determinable
until after the Closing Date, the Parties agree that the Closing Payment will be
paid as follows:
(a) On the Closing Date, Seller will pay to Buyer by wire
transfer of immediately available funds no later than 12:00 noon on the Closing
Date to an account designated by Buyer, the Closing Payment (such Closing
Payment to be in a mutually agreed estimated amount based on account balances
and other information known as of the close of business on the third Business
Day immediately prior to the Closing Date); and
(b) On the first Business Day after the Closing, Seller shall
provide Buyer with a closing settlement statement of the Closing Payment
calculated pursuant to this Section 4.2 to accurately reflect the Deposits, Net
Book Value for each Fixed Asset, the balance plus Accrued Interest of the
Account Loans and Cash on Hand, (and any prorations not reflected in the payment
made in the Closing Payment), all as of the Closing Date and relating to the
Branches. Buyer or Seller, as appropriate, shall, on such date, pay to the other
party any amount payable (based upon the difference between the Closing Payment
calculated pursuant to subparagraph (a) above and that calculated pursuant to
this subparagraph) by wire transfer in immediately available funds to an account
designated by the receiving party together with interest from the Closing Date
to the date of payment in full at the overnight Federal Funds rate in effect for
each such day, as published in the Wall Street Journal (Western Edition);
provided, however, that if such payment is made after three (3) Business Days
from the first Business Day after the Closing, then such amount shall bear
interest calculated at the average weighted cost of the Deposits transferred to
Buyer pursuant to this Agreement.
8
<PAGE>
Unless otherwise specified in this Agreement, any amounts required to
be paid pursuant hereto which are not paid when required to be paid shall bear
interest from the due date until paid in full at the overnight Federal Funds
rate in effect for each day, as published in the Wall Street Journal (it being
understood that on days on which the Wall Street Journal is not published
interest shall accrue at the overnight Federal Funds rate in effect on the most
recent day on which the Wall Street Journal was published); provided, however,
that if such payment is made after three (3) Business Days from the due date,
then such amount shall bear interest calculated at the average weighted cost of
the Deposits transferred to Buyer pursuant to this Agreement. Any payment
pursuant to this Agreement sent after 12:00 noon shall be deemed to have been
made on the next Business Day. All references to hours of the day in this
Agreement shall be references to California time.
4.3 POST-CLOSING ADJUSTMENTS. Except as otherwise expressly provided in
this Agreement, the Parties shall cooperate in the prompt determination of
adjustments, payments or reimbursements contemplated hereby in connection with
the Closing and within forty-five (45) days after the Closing shall settle such
amounts in a manner consistent with the express terms of this Agreement.
4.4 DELIVERIES AT CLOSING. At the Closing, Seller shall deliver to
Buyer the documents as set forth in Section 10.1(e), and Buyer shall deliver to
Seller the documents as set forth in Section 10.2(e).
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
Buyer represents and warrants to Seller the following:
5.1 ORGANIZATION. Buyer is a federally chartered savings bank, duly
organized, validly existing and in good standing under the laws of the United
States of America.
5.2 AUTHORITY. Buyer has the corporate power and authority to execute,
deliver and perform this Agreement and has secured all necessary corporate
consents and approvals in connection with the execution of this Agreement and
the consummation of the transactions contemplated hereby, subject to obtaining
all necessary regulatory approvals. Upon execution and delivery, this Agreement
will constitute a valid and binding obligation of Buyer enforceable against it
in accordance with its terms, subject to applicable bankruptcy, insolvency,
receivership, and similar laws affecting creditors' rights generally and laws
relating to the rights of creditors of federally insured financial institutions,
and, as to enforceability, to general principles of equity (whether enforcement
is sought in a proceeding in equity or at law).
5.3 COMPLIANCE WITH OTHER INSTRUMENTS AND LAW. Buyer holds all
licenses, franchises, permits and authorizations necessary for the lawful
conduct of its business, and has not materially violated, and is not in material
violation of, any applicable statutes, laws, ordinances, rules or regulations of
all federal, state and local governmental bodies, agencies and subdivisions
having, asserting or claiming jurisdiction over it, where such violation would
have a material adverse effect upon its ability to enter into and perform its
obligations under this Agreement.
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5.4 NO BREACH. The execution, delivery and performance of this
Agreement by Buyer and the consummation of the transaction contemplated hereby
will not violate or cause a breach of or constitute a default under any
judgment, injunction, order, decree, material agreement or material instrument
binding upon Buyer. The execution, delivery and performance of this Agreement by
Buyer and the consummation of the transactions contemplated hereby will not
violate its charter or by-laws or, upon receipt of all required regulatory
approvals, any law or regulation applicable to it.
5.5 LITIGATION. There is no action, suit or proceeding pending against
Buyer or to Buyer's knowledge threatened against or affecting Buyer before any
court or arbitrator or any governmental body, agency or official which could
materially adversely affect the ability of Buyer to perform its obligations
under this Agreement.
5.6 GOVERNMENTAL NOTICES. Buyer has no reason to believe that any
federal, state or other governmental agency having jurisdiction to approve or
consent to the transaction would oppose or not grant or issue its consent or
approval, if required, with respect to the transactions contemplated hereby.
5.7 REGULATORY APPROVALS. The information furnished or to be furnished
by Buyer pursuant to Section 8.1 of this Agreement for the purpose of filing any
regulatory application and/or notice is or will be true and complete as of the
date so furnished.
5.8 CONSENTS. Other than the approval of the OTS, no consent, approval
or authorization of any governmental authority or agency is required for the
execution, delivery and performance by Buyer of this Agreement and the
consummation by it of any transactions contemplated hereby.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF SELLER
----------------------------------------
Seller represents and warrants to Buyer the following:
6.1 ORGANIZATION. Seller is a federally chartered savings bank duly
organized, validly existing and in good standing under the laws of the United
States of America.
6.2 AUTHORITY. Seller has the corporate power and authority to execute,
deliver and perform this Agreement and has secured all necessary corporate
consents and approvals in connection with the execution of this Agreement and
the consummation of the transactions contemplated hereby subject to obtaining
regulatory approval and necessary Landlord consents. Upon execution and
delivery, this Agreement will constitute a valid and binding obligation of
Seller enforceable against it in accordance with its terms, subject to
applicable bankruptcy, insolvency, receivership, and similar laws affecting
creditors' rights generally, and the rights of creditors of federally insured
financial institutions, and to general principles of equity (whether enforcement
is sought in a proceeding in equity or at law). The Deposits are insured by the
FDIC up to the current applicable maximum limits and Seller has received no
written notice of any action pending or threatened by the FDIC with respect to
termination of such insurance.
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6.3 COMPLIANCE WITH OTHER INSTRUMENTS AND LAW. Seller holds all
licenses, franchises, permits and authorizations necessary for the lawful
conduct of its business, and has not materially violated, and is not in material
violation of, any applicable statutes, laws, ordinances, rules or regulations of
all federal, state and local governmental bodies, agencies and subdivisions
having, asserting or claiming jurisdiction over it in the conduct of its
business at the Branches or where such violation would have a material adverse
effect upon its ability to enter into and perform its obligations under this
Agreement.
6.4 NO BREACH. The execution, delivery and performance of this
Agreement by Seller and the consummation of the transaction contemplated hereby
will not violate or cause a breach of or constitute a default under any
judgment, injunction, order, decree, material agreement or material instrument
binding upon Seller. The execution and performance of this Agreement by Seller
and the consummation of the transactions contemplated hereby will not violate
its charter or by-laws or, upon receipt of all required regulatory approvals,
any law or regulation applicable to it.
6.5 LITIGATION. There is no action, suit or proceeding pending against
Seller or to Seller's Knowledge threatened against or affecting Seller, before
any court or arbitrator or any governmental body, agency or official which could
materially adversely affect the aggregate value of the Deposits or the Assets,
or the ability of Seller to perform its obligations under this Agreement.
6.6 TITLE TO ASSETS. With respect to Assets other than the Real Estate,
Seller is the lawful owner of and has good and marketable title to the Assets,
free and clear of all Encumbrances. Delivery to Buyer of the instruments of
transfer of ownership contemplated by this Agreement will vest in Buyer all
right, title and interest of the Seller in and to the Assets other than the Real
Estate (which shall be transferred as provided, and with the effect stated in,
the Real Estate Agreement.
6.7 TIN CERTIFICATION. Seller has complied in all material respects
with all applicable tax laws relating to obtaining and, if appropriate,
correcting taxpayer identification numbers ("TINs"), including the use of due
diligence and/or reasonable cause as defined for purposes of the Internal
Revenue Code, relating to TIN compliance with respect to holders of the
Deposits.
6.8 ACCOUNT LOAN ENFORCEABILITY. All Account Loans transferred to Buyer
pursuant to the terms of this Agreement are valid and enforceable subject to
applicable bankruptcy, insolvency, receivership, and similar laws affecting
creditors' rights generally, and, as to enforceability, to general principles of
equity (whether enforcement is sought in a proceeding in equity or at law).
6.9 SAFE DEPOSIT BOXES. The Safe Deposit Boxes do not hold contents
subject to escheatment as of the Closing Date.
6.10 INSURANCE. All insurance policies maintained by Seller and
applicable to the Branches are in full force and effect as described on Schedule
6.10.
6.11 TAXES. All payroll, withholding, property, excise, sales, use and
transfer taxes imposed by the United States or by any state, municipality,
subdivision or instrumentality of the United States or by any other taxing
authority which are due and payable by Seller on or prior to the Closing
relating to the Branches as of the Closing Date have been paid in full, or will
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be so paid prior to, or prorated at, the Closing, except to the extent contested
by Seller in good faith through appropriate proceedings.
6.12 RECORDS. To Seller's Knowledge, the Records are originals of, or
true and correct copies of, records created and maintained during the ordinary
course of business by Seller at the Branches.
6.13 SERVICE AND MAINTENANCE CONTRACTS. There are no contracts or other
agreements relating to the rendering by third parties of services to the
Branches other than those which have been delivered to Buyer pursuant to Section
3.3 hereof.
6.14 REGULATORY APPROVALS. The information furnished or to be furnished
by Seller pursuant to Section 8.1 of this Agreement for the purpose of enabling
Buyer to complete and file an application with the OTS is or will be true and
complete as of the date so furnished.
6.15 CONSENTS. Other than the approval of the OTS, no consent, approval
or authorization of any governmental authority or agency is required for the
execution, delivery and performance by Seller of this Agreement and the
consummation by it of any transactions contemplated hereby.
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6.16 OPERATION. To Seller's Knowledge, there are no facts or
circumstances pending or threatened which could have a material adverse effect
on the present or future use of the Branches as a bank office. Except for (i)
agreements provided under Section 3.3, and (ii) agreements necessary or
desirable to consummate the transactions contemplated hereby, Seller is not a
party to any other material agreement relating to the Branches or the Assets
(excluding, however, the Real Estate) except as described on Schedule 6.16
attached hereto.
6.17 CONDEMNATION. Seller has not received notice of any pending or
threatened proceeding in eminent domain or otherwise, which would affect the
Branches, or any portion thereof. To Seller's Knowledge there are no existing,
proposed or contemplated plans to widen, modify or realign any street or highway
contiguous to the Branches, except as described on Schedule 6.17 hereto. To
Seller's Knowledge, except as shown on the real property public records or on
tax bills, there are no intended public improvements which will result in any
charge being levied or assessed against, or in the creation of any Encumbrance
upon, the Branches.
6.18 HAZARDOUS SUBSTANCES. Seller represents and warrants that to
Seller's Knowledge, (i) no Hazardous Substances are or have been present,
stored, disposed of, or released in or at the Branches in violation of
Environmental Laws, (ii) no Hazardous Substances are or have been present,
stored, disposed of or released above or below the Branches by Seller in
violation of Environmental Laws; (iii) Seller has not received any written
communication from a governmental authority that alleges a violation of
Environmental Laws concerning the Branches that has not been cured; (iv) to
Seller's Knowledge, there has been no claim, action, cause of action,
investigation, or communication asserted by a person alleging potential
liability arising out of or based on or resulting from the presence, storage,
disposition or release of any Hazardous Substance at, above, or below the
Branches or the violation or alleged violation of any Environmental Law
concerning the Branches.
6.19 RETIREMENT ACCOUNT COMPLIANCE. In creating and maintaining the
Retirement Accounts to be transferred pursuant to this Agreement, Seller was and
has been in material compliance with applicable federal and state laws and
regulations.
ARTICLE VII
COVENANTS OF BUYER
------------------
7.1 ASSISTANCE IN OBTAINING REGULATORY APPROVALS. Buyer shall be
responsible for the preparation and filing of the applications and notices for
approval of the transaction contemplated herein with the OTS, except for any
application under Section 563.22 of the OTS Regulations ("transfer application")
which may be required of Seller. Buyer shall cooperate with Seller in providing
information for any transfer application made by Seller. Buyer will be solely
responsible for all fees, expenses and costs incurred with respect to the
preparation and filing of the applications and notices with the OTS, except for
any such transfer application filed by Seller. Notwithstanding the previous
sentence, each Party shall pay such Party's own attorneys' and consultant fees.
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7.2 PERFORMANCE OF LIABILITIES. Subject to Seller's compliance with
Section 13.6 from and after the Closing, Buyer agrees to pay (to the extent
there are sufficient available funds on deposit) all properly drawn checks,
drafts and negotiable orders of withdrawal drawn against a Deposit account
transferred by Seller to Buyer as contemplated herein, timely presented to Buyer
by mail, over its counters or through inclearings and drawn on the check or
draft forms provided by Seller for ninety (90) days after the Closing Date.
7.3 CONSENTS AND NOTICES. Buyer: (i) will use commercially reasonable
efforts to obtain prior to the Closing Date all consents, approvals or
authorizations required to be obtained by it for the consummation of the
transaction contemplated hereby; and (ii) will publish all notices required by
all governmental authorities or agencies required for the execution, delivery
and performance by Buyer of this Agreement and the consummation by it of any
transaction contemplated hereby.
7.4 FURTHER ASSURANCES. On and after the Closing Date, Buyer shall give
such further assurances to Seller and upon Seller's request shall execute,
acknowledge and deliver all such acknowledgments and other instruments and take
such further action as may be reasonably necessary and appropriate to
effectively relieve and discharge Seller from any obligations remaining under
the Liabilities transferred to Buyer and to confirm the assumption of the
Liabilities by Buyer; provided, however, that Buyer need not incur any material
costs or expenses in connection with the undertakings contained in this sentence
unless such costs or expenses are paid by Seller.
7.5 CONFIDENTIALITY. Buyer shall hold, and shall cause its respective
directors, officers, employees, agents, consultants and advisors to hold, in
strict confidence, unless disclosure to a bank regulatory authority is necessary
in connection with any regulatory approval or unless compelled to disclose by
judicial or administrative process or, in the written opinion of its counsel, by
other requirements of law or the applicable requirements of any regulatory
agency or relevant stock exchange, all records, books, contracts, instruments,
computer data and other data and information (collectively, "Information")
concerning Seller furnished it by Seller or its representatives pursuant to this
Agreement (except to the extent that such information can be shown to have been
(a) previously known by Buyer on a non-confidential basis, (b) in the public
domain through no fault of Buyer or (c) later lawfully acquired on a
nonconfidential basis from other sources by Buyer) and shall not release or
disclose such Information to any other person, except its auditors, attorneys,
financial advisors, bankers, other consultants and advisors, in each case only
to the extent such persons have a need to know such information in order to
properly advise Buyer, and, to the extent permitted above, to bank regulatory
authorities. The obligations of Buyer in the preceding sentence shall terminate
upon the Closing with respect to information relating to the Branches. In the
event of termination of the transactions contemplated in this Agreement prior to
Closing, Buyer shall return to Seller all such records, books, contracts,
instruments, computer data and other data or information and all copies thereof
in its possession or the possession of third parties subject to its direction,
and shall certify in writing as to the foregoing.
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ARTICLE VIII
COVENANTS OF SELLER
-------------------
8.1 ASSISTANCE IN OBTAINING REGULATORY APPROVALS. Seller shall be
responsible for the preparation and filing and for all fees, expenses and costs
incurred in the preparation and filing of, any required transfer application for
OTS approval.
8.2 CONSENTS AND NOTICES. Seller: (i) will use commercially reasonable
efforts to obtain prior to the Closing Date all consents, approvals or
authorizations required to be obtained by it for the consummation of the
transactions contemplated hereby; and (ii) will publish and issue all notices
required by all governmental authorities or agencies required for the execution,
delivery and performance by Seller of this Agreement and the consummation by it
of any transactions contemplated hereby.
8.3 ACCESS TO RECORDS AND INFORMATION; PERSONNEL; CUSTOMERS.
(a) Between the Signature Date and the Closing Date, Seller
shall afford to Buyer and its authorized agents and representatives access,
during normal business hours, to the operations, books, records, contracts,
documents and other information of or relating to the Deposits and Assets to be
transferred to Buyer as contemplated herein, and, as to the Real Estate, subject
to the access requirements contained in the Real Estate Agreement, and shall
provide Buyer a true copy of the form of all contracts, agreements, and other
documents governing or specifying the terms of the relationship between Seller
and its customers at the Branches. Reasonable notice for access shall be given
to Seller by Buyer. The date and time of such access will then be mutually
agreed upon by both Parties. Seller shall cause its personnel to provide
assistance to Buyer in Buyer's investigation of matters relating to such
Deposits, Account Loans, Assets and Safe Deposit Boxes; provided, however, that
Buyer's investigation shall be conducted in a manner which does not unreasonably
interfere with Seller's normal operations, customers and employee relations; and
provided further, that Buyer and its authorized agents and representatives shall
be afforded physical access to the Branches over the weekend immediately prior
to the Closing Date.
(b) Buyer, with Seller's prior written consent, may, at its
own expense, upon regulatory approval of the transaction contemplated by this
Agreement, communicate with, and deliver information, brochures, bulletins,
press releases and other communications to depositors of the Branches concerning
such transaction and concerning the business and operations of Buyer.
8.4 CONDUCT OF BUSINESS PENDING CLOSING. Between the Signature Date and
the Closing Date, and except as may otherwise be required by a regulatory
authority, Seller shall conduct its business at the Branches in the ordinary
course consistent with past practice and shall not, without the prior consent of
Buyer, which consent shall not be unreasonably withheld:
(a) Cause the Branches to engage or participate in any
transaction that would materially and adversely affect the Deposits, Account
Loans, Assets or Safe Deposit Boxes, except in the ordinary course of business;
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(b) Cause the Branches to transfer to Seller's other branches
any Deposits to be transferred to Buyer as contemplated herein, except upon the
unsolicited request of a depositor in the ordinary course of business;
(c) Increase or agree to increase the salary, remuneration or
compensation of persons employed at the Branches other than in accordance with
Seller's customary policies and/or bank-wide changes, or pay or agree to pay any
bonus not committed or contemplated prior to the date of this Agreement to any
such Employees other than regular bonuses granted based on historical practice
or in connection with the retention bonus program instituted by Seller in
contemplation of the transactions described herein;
(d) Enter into any commitment, agreement, understanding or
other arrangement to dispose of the Assets and Liabilities to be transferred to
Buyer as contemplated herein, other than pursuant to the terms of this
Agreement;
(e) Invest in any new Fixed Assets of the Branches, except for
commitments made and disclosed to Buyer in writing on or before the Signature
Date and for replacements of furniture, furnishings and equipment and normal
maintenance and refurbishing purchased or made in the ordinary course of
business;
(f) Cause or permit the Branches to transfer to Seller's other
operations or branches any Account Loans or Fixed Assets of the Branches; and
(g) Transfer, assign, permit any Encumbrance to exist with
respect to or otherwise dispose of, or enter into any contract, agreement or
understanding to transfer, assign, cause or permit any Encumbrance to exist
(which Encumbrance would not be permitted under Section 6.6) with respect to or
otherwise dispose of, any of the Assets except in the ordinary course of
business and subject to the other provisions of this Section 8.4.
8.5 BOOKS AND RECORDS. Seller shall retain (i) all books and records
relating to the Branches which are not ordinarily maintained at the Branches
along with transaction tickets through the Closing Date and all records of
closed accounts, except books and records from centralized servicing areas
(including, but not limited to, W-8 and W-9 Certifications), and (ii) all
transaction documents related to the Deposits. On the Closing Date, Seller shall
deliver to Buyer possession of, and all of Seller's right, title and interest to
and in, the Records. All transaction documents, books and records which are
retained by Seller after the Closing Date and which relate directly to
transactions involving Assets and Deposits of the Branches occurring prior to
the Closing Date shall (i) be maintained for a period which is at least the
longer of the period required by law or the normal retention period under
Seller's record retention program, unless the Parties shall, applicable law
permitting, agree upon a shorter period; and (ii) even if such transaction
documents, books and records are relocated to third-party long-term storage
facilities or transferred to microfilm or other media in accordance with
Seller's normal practices, shall upon Buyer's request pursuant to a customer's
reasonable inquiry, be made available to Buyer at no cost. For any purpose other
than pursuant to a customer's reasonable inquiry, unless the Parties agree to
another arrangement, Seller shall provide such transaction documents, books and
records as Buyer may deem desirable at Seller's regular customer service charge
for research and copying, except if such purpose is reasonably necessary to
permit Buyer to comply with or contest any applicable legal, tax, banking,
accounting or regulatory policies, requirements or proceedings, arising out of
the obligations of Seller prior to Closing, in which case no charge shall be
made.
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8.6 INSURANCE POLICIES. Seller will maintain in effect until the
Closing all insurance policies set forth in Schedule 6.10 attached hereto or
replacement policies providing coverage at least equal to their current
coverage.
8.7 FURTHER ASSURANCES. On and after the Closing Date, Seller shall (i)
give such reasonable further assurances to Buyer and upon Buyer's request shall
execute, acknowledge and deliver all such acknowledgments and other instruments
and take such reasonable further action as may be necessary and appropriate to
effectively relieve and discharge Buyer from any obligations remaining under the
Deposits transferred to Buyer, except obligations assumed under this Agreement;
and (ii) give such further assistance to Buyer and shall execute, acknowledge
and deliver all such bills of sale, acknowledgments and other instruments and
take such further action as may be necessary and appropriate effectively to vest
in Buyer full, legal and equitable title to the Assets transferred to Buyer;
provided, however, that Seller need not incur any material costs or expenses in
connection with the undertakings contained in this sentence unless such costs or
expenses are paid by Buyer. In particular, and without limiting the foregoing:
(a) After the Closing Date, Seller shall mail or, upon Buyer's
written request and at the sole cost and expense of Buyer, deliver by overnight
courier, in either case, to Buyer promptly after receipt thereof by Seller all
payments relating to Account Loans or amounts intended for deposit to the
accounts which are part of the Deposits transferred to Buyer or otherwise
relating to such Deposits or Account Loans;
(b) With respect to checks or drafts against accounts which
are Deposits transferred to Buyer, Seller and Buyer shall cooperate with one
another such that on and after the Closing Date, each such item which is coded
for presentment to Seller or to any bank for the account of Seller, is delivered
to Buyer in a timely manner and in accordance with Section 13.6, applicable law
and Clearing House rules or agreement;
(c) Except as otherwise contemplated by this Agreement, Seller
shall remove any supply of money orders, traveler's checks and other forms and
papers (other than Records) located at the Branches not later than the close of
business on the Closing Date; and
(d) Not earlier than 2:00 p.m. on the Closing Date, Seller
shall void all ATM access cards issued by it to customers of the Branches except
for customers that are also deposit customers of other branches of Seller.
(e) On or before twenty-one days after the Closing, Seller
will provide to Buyer a transaction history report in mutually acceptable form
with respect to the Deposits, covering the fourth quarter of 1999. In the event
Seller enters into an agreement contemplating the merger or consolidation of
Seller with and into another financial institution (where Seller is not the
surviving entity) or the sale of all or substantially all of the assets of
Seller, Seller shall provide a similar transaction history report in similar
form for the second and third quarters of 1999.
8.8 CONSENTS. Seller shall secure all necessary corporate consents,
shall use commercially reasonable efforts to secure all consents and releases
required of third parties (except those regarding Buyer) and shall comply with
all applicable laws, regulations and rulings in connection with this Agreement
and the consummation of the transactions contemplated hereby.
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8.9 OPERATION OF BRANCHES. From and after the date of this Agreement
until the Closing Date, Seller shall operate and manage the Branches in the
normal and ordinary course and in accordance in all material respects with all
applicable federal, state and local laws, ordinances and requirements and
private covenants, conditions, restrictions and other agreements, and maintain
the Branches in good order, condition and repair in all material respects.
Seller shall punctually pay and perform all of its obligations under the Branch
Leases and related service contracts, and pay before delinquency all taxes,
assessments, utility charges and other expenses affecting the Branches except to
the extent contested in good faith by appropriate proceedings. After the
Signature Date, Seller shall use commercially reasonable efforts to retain at
the Branches the Deposits which are domiciled at the Branches as of the date of
this Agreement; provided, that Seller shall not pay above-market rates on the
Deposits to do so. Without limiting the generality of the foregoing, Seller
shall not change its pricing policies with respect to the deposits at the
Branches, nor shall Seller change the terms of deposits offered at the Branches
or introduce new deposit products at the Branches, except, in each case, where
such changes in pricing policies or terms in deposits, or new deposit products,
are made or introduced on a company-wide basis or in the ordinary course of
Seller's business.
8.10 SERVICE AND MAINTENANCE CONTRACTS. Seller shall, if requested by
Buyer, use commercially reasonable efforts to continue to make the services and
benefits of any service and maintenance contracts related to the Branches
available to Buyer and in such event and if Buyer elects to assume such
contracts and such contracts are permitted to be assumed, Buyer shall pay at the
contract rate for any desired services to be rendered to it after the Closing
Date pursuant to any such contract. Seller has provided, or will provide, on or
before five days from the Signature Date, to Buyer copies of service and
maintenance contracts related to the Branches which are outstanding as of the
Signature Date. With respect to any such contracts, Buyer shall, not later than
fifteen (15) days after the Signature Date, notify Seller of those contracts
which it elects to assume (to the extent permitted by the relevant contract and
law), and Seller shall assign all of its right, title and interest in such
contracts so assumed to Buyer at the Closing pursuant to documents and
agreements in form and substance reasonably satisfactory to Buyer.
8.11 REPURCHASE OF CERTAIN ACCOUNT LOANS AND DEPOSITS. Seller agrees,
on the first Business Day following the date which is thirty (30) days following
Closing, (a) to repurchase from Buyer any Account Loan and to reassume any
obligations under any associated Deposit which (i) at Closing, was listed on the
Schedule of Delinquent Account Loans and (ii) on the date which is thirty (30)
days following Closing, remained delinquent; and (b) to repurchase from Buyer
any Deposit and to reassume any obligations under such Deposit which (i) at
Closing, was a Negative Balance Deposit and (ii) on the date which is thirty
(30) days following Closing, remained a Negative Balance Deposit, for a cash
repurchase price equal to the negative balance of such Deposit on the Closing
Date. For purposes of the foregoing sentence, an Account Loan shall be
considered delinquent if such loan is more than sixty (60) days past due at the
applicable time. Seller and Buyer shall cooperate in the repurchase of such
Account Loans and Deposits and the reassumption of obligations under such
Account Loans and Deposits.
8.12 SIGNS. Buyer shall, at its own cost, remove all exterior and
interior signs identifying Seller at the Branches and restore exterior surfaces.
The parties shall cooperate with each others efforts with respect to the
foregoing to the extent reasonable.
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8.13 COOPERATION. Seller shall use all commercially reasonable efforts
to assist Buyer in preparing for and in conducting a smooth and orderly
transition of operations at the Branches from Seller to Buyer, including,
without limitation, the provision on a reasonably prompt basis of such
information and access to personnel of Seller at the Branches during business
hours as may reasonably be requested by Buyer for such purpose; provided that
such efforts shall not materially interfere with Seller's normal business
operations.
8.14 CONFIDENTIALITY. Seller shall hold, and shall cause its respective
directors, officers, employees, agents, consultants and advisors to hold, in
strict confidence, unless disclosure to a bank regulatory authority is necessary
in connection with any regulatory approval or unless compelled to disclose by
judicial or administrative process or, in the written opinion of its counsel, by
other requirements of law or the applicable requirements of any regulatory
agency or relevant stock exchange, all records, books, contracts, instruments,
computer data and other data and information (collectively, "Information")
concerning Buyer furnished it by Buyer or its representatives pursuant to this
Agreement (except to the extent that such information can be shown to have been
(a) previously known by Seller on a non-confidential basis, (b) in the public
domain through no fault of Seller or (c) later lawfully acquired on a
nonconfidential basis from other sources by Seller) and shall not release or
disclose such Information to any other person, except its auditors, attorneys,
financial advisors, bankers, other consultants and advisors, in each case only
to the extent such persons have a need to know such information to properly
advise Seller, and, to the extent permitted above, to bank regulatory
authorities. The obligations of Seller in the preceding sentence shall terminate
upon the Closing with respect to information relating to the Branches. In the
event of termination of the transactions contemplated in this Agreement prior to
Closing, Seller shall return to Buyer all such records, books, contracts,
instruments, computer data and other data or information and all copies thereof
in its possession or the possession of third parties subject to its direction,
and shall certify in writing as to the foregoing.
8.15 UPDATING OF SCHEDULES. On or before five (5) Business Days after
the Signature Date, Seller shall amend and restate, or confirm Schedule 3.2(b)
and Schedule 3.3 attached hereto based upon consultation with Branch personnel,
and such Schedules as amended and restated or as confirmed shall constitute the
final Schedule. In the case of Schedule 3.3, such amendment and restatement may
consist of providing copies of the agreements listed on Schedule 3.3 as
constituted on the Signature Date.
ARTICLE IX
NON-COMPETITION
---------------
9.1 SOLICITATION. For a period of twelve (12) months following the
Closing Date, Seller will not, directly or indirectly, knowingly solicit
deposits by the use of direct mail, telemarketing, internet marketing programs
or other marketing methods specifically directed at people or entities (i)
within a five (5.0) mile radius of the Blue Jay or Big Bear Branches or (ii)
within a two-and-one half (2.5) mile radius of the Fullerton Branch or (iii) at
customers of the Branches. Notwithstanding the previous sentence, this Section
9.1 shall not limit the right of Seller to solicit customers through a general
marketing program (including, without limitation, a website) not targeted to
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customers of the Branches or to solicit customers who are also customers of
other operations or branches of Seller or are customers with respect to
nondeposit investment products administered by Seller or an affiliate thereof.
9.2 NON-COMPETITION. For a period of twelve (12) months following the
Closing Date, Seller shall not, directly or indirectly, without the prior
written consent of Buyer, own, operate or purchase an office of a savings and
loan association, commercial bank, savings bank or depositary institution within
a five (5.0) mile radius of the Big Bear or Blue Jay Branches or within a
two-and-one half (2.5) mile radius of the Fullerton Branch. This Section 9.2
shall not prohibit Seller from acquiring a branch or branches within such radius
when such acquisition is part of a multi-branch purchase from, or a merger with,
another financial institution.
ARTICLE X
CONDITIONS TO CLOSING
---------------------
10.1 CONDITIONS TO THE OBLIGATIONS OF BUYER. Unless waived in writing
by Buyer, the obligations of Buyer to consummate the transaction contemplated by
this Agreement are subject to the satisfaction, in good faith, at or prior to
the Closing of the following conditions:
(a) PERFORMANCE. Each of the acts and undertakings of Seller
to be performed at or before the Closing Date pursuant to this Agreement shall
have been duly performed in all material respects.
(b) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Seller contained in this Agreement shall be true and complete on
and as of the Closing Date with the same effect as though made on and as of the
Closing Date.
(c) ABSENCE OF PROCEEDINGS AND LITIGATION. No order shall have
been entered and remain in force at the Closing Date restraining or prohibiting
any of the transactions contemplated by this Agreement in any legal,
administrative or other proceeding and no action or proceeding shall have been
instituted or threatened on or before the Closing Date pertaining to the
transactions contemplated by this Agreement which, in the reasonable judgment of
Buyer, could be materially adverse to Buyer's consummating this Agreement.
(d) REGULATORY APPROVALS. All required licenses, approvals and
consents of any relevant state, federal or other regulatory agencies shall have
been obtained and all necessary conditions to those licenses, approvals and
consents shall have been fully satisfied; provided, however, that if any such
licenses, approvals or consents are qualified or conditioned in any manner which
materially and adversely affects the operations of the Branches as a branch of
Buyer, or otherwise materially adversely affects Buyer or the conduct of Buyer's
business, this condition may be deemed by Buyer to be unsatisfied.
(e) DOCUMENTS. In addition to the documents described
elsewhere in this Section 10.1, Buyer shall have received the following
documents from Seller duly executed:
(1) A General Bill of Sale and Assignment and Assumption
substantially in the form of Exhibit B hereto.
(2) A Retirement Accounts Transfer Agreement
substantially in the form of Exhibit D hereto.
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(3) A certificate of the Secretary or Assistant Secretary
of Seller as to the incumbency and signatures of officers.
(4) Such other bills of sale and other instruments and
documents as counsel for Buyer may reasonably require as necessary or desirable
for transferring, assigning and conveying to Buyer good, marketable and
insurable title to the Assets to be transferred to Buyer as contemplated herein,
all in form and substance reasonably satisfactory to counsel for Buyer.
(5) A certificate signed by duly authorized officers of
Seller stating that the representations and warranties of Seller under Article
VI of this Agreement are true as of the Closing Date, that the respective
covenants of Seller to be performed on or before the Closing Date have been
performed in all material respects, and that the conditions set forth in this
Section 10.1 have been satisfied.
(6) Resolutions of Seller's Board of Directors, certified
by its Secretary or Assistant Secretary, authorizing the signing and delivery of
this Agreement and the consummation of the transactions contemplated hereby.
(7) A computer printout of Deposits being transferred to
Buyer.
(8) A list of holds pursuant to Section 13.7.
(9) A copy of the form of the notice Seller sent to its
customers in accordance with Section 13.1, and the final customer list
contemplated by Section 13.1.
(10) The Records relating to the Branches.
(11) The conveyance and assignment documents pursuant to
the Real Estate Agreement.
(12) A schedule listing the Account Loans and associated
Deposits which are sixty 60 days delinquent as of the Closing (the "Delinquent
Account Schedule").
(13) Such other documents and instruments as Buyer may
reasonably request in connection with the performance by Seller of any of its
obligations hereunder.
(f) ESCROWS. The escrows pursuant to the Real Estate Agreement
shall have been established and such escrows shall have closed concurrently with
the transactions described herein.
(g) NO MATERIAL ADVERSE CHANGE. No material adverse change
shall have occurred affecting (i) the Branches and the Assets, taken as a whole
or (ii) the ability to conduct operations at the Branches.
(h) REIMBURSEMENT. Buyer shall have received cash in an amount
equal to the payment to be made at Closing under Sections 2.2 and 2.3, which
cash payment may, but shall not be required to, be made through the credit by
Buyer to Seller of the Purchase Price under the Mortgage Loan Purchase
Agreement.
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(i) REAL ESTATE DUE DILIGENCE. Buyer shall have received, on
or before the expiration of the period set forth in Section 3.2(a), Phase I
and/or other environmental reports on each of the Branches and the related Real
Estate that are satisfactory to Buyer.
(j) AMENDED AND RESTATED SCHEDULES. Buyer shall have
determined that any amended and restated schedules delivered to Buyer pursuant
to Section 8.15 are reasonably acceptable in within three Business Days after
delivery thereof.
10.2 CONDITIONS TO THE OBLIGATIONS OF SELLER. Unless waived in writing
by Seller, the obligations of Seller to consummate the transaction contemplated
by this Agreement are subject to the satisfaction, in good faith, at or prior to
the Closing of the following conditions:
(a) PERFORMANCE. Each of the acts and undertakings of Buyer to
be performed at or before the Closing Date pursuant to this Agreement shall have
been duly performed in all material respects.
(b) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Buyer contained in Article V of this Agreement shall be true and
complete on and as of the Closing Date with the same effect as though made on
and as of the Closing Date.
(c) ABSENCE OF PROCEEDINGS AND LITIGATION. No order shall have
been entered and remain in force at the Closing Date restraining or prohibiting
any of the transactions contemplated by this Agreement in any legal,
administrative or other proceeding and no action or proceeding shall have been
instituted or threatened on or before the Closing Date pertaining to the
transaction contemplated by this Agreement which, in the reasonable judgment of
Seller, could be materially adverse to Seller's consummating this Agreement.
(d) REGULATORY APPROVAL. All required licenses, approvals and
consents of any relevant state, federal or other regulatory agencies shall have
been obtained and all necessary conditions to those licenses, approvals and
consents shall have been fully satisfied.
(e) DOCUMENTS. In addition to the documents described
elsewhere in this Section 10.2, Seller shall have received the following
documents from Buyer duly executed:
(1) A General Bill of Sale and Assignment and Assumption
substantially in the form of Exhibit B hereto.
(2) An Assumption of Deposit Liabilities substantially in
the form of Exhibit C hereto.
(3) A Retirement Accounts Transfer Agreement
substantially in the form of Exhibit D hereto.
(4) A certificate of the Secretary or Assistant Secretary
of Buyer as to the incumbency and signatures of officers.
(5) A certificate signed by duly authorized officers of
Buyer stating that the representations and warranties of Buyer under Article V
of this Agreement are true as of the Closing Date, and that the respective
covenants of Buyer to be performed on or before the Closing Date have been
performed in all material respects, and that the conditions set forth in this
Section 10.2 have been satisfied.
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(6) All relevant documents relating to the establishment
and closing of the escrows as required by Section 10.1(g).
(7) Such other documents or instruments as Seller may
reasonably request in connection with the performance by Buyer of any of its
obligations hereunder.
(8) Resolutions of Buyer's Board of Directors, certified
by its Secretary or Assistant Secretary, authorizing the signing and delivery of
this Agreement and the consummation of the transactions contemplated hereby.
ARTICLE XI
TERMINATION
-----------
11.1 CONDITIONS FOR TERMINATION. This Agreement shall terminate and be
of no further force and effect as between the Parties hereto, upon the
occurrence of any of the following:
(a) By either Party upon the expiration of fifteen (15) days
after the refusal or denial by any governmental agency of any approvals or
consents required to be obtained pursuant to this Agreement, unless, within such
fifteen (15) day period, the relevant Party resubmits the application or appeals
the decision of the governmental entity that has denied or refused to grant such
consent or approval and, in such event, by either Party upon the expiration of
five (5) days after the denial or refusal by such governmental agency of such
appeal or resubmitted application.
(b) By a Party upon the expiration of five (5) Business Days
from the date that such Party has given written notice to the other Party of (i)
such other Party's material breach of any covenant under this Agreement or the
Real Estate Agreement; or (ii) such other Party's material breach of a
representation and warranty under this Agreement or the Real Estate Agreement,
or (iii) the failure of any condition to such Party's obligations under this
Agreement or the Real Estate Agreement, provided, however, that no such
termination shall take effect if within such five (5) day period the Party so
notified shall have fully and completely corrected the grounds for termination
as specified in such notice.
(c) Upon the termination of the Real Estate Agreement.
(d) Upon the failure to consummate the transaction by July 31,
2000 unless extended by mutual agreement in writing of the Parties.
(e) Upon mutual consent of the Parties to terminate.
Notwithstanding anything to the contrary herein contained in this Agreement, no
Party shall have the right to terminate this Agreement on account of its own
breach or any immaterial breach by the other Party.
11.2 EFFECT OF TERMINATION. Termination of this Agreement pursuant to
Section 11.1 or for any reason or in any manner shall not release, or be
construed to release, any Party hereto from liability or damage to any other
Party arising out of, in connection with, or otherwise relating to, directly or
indirectly, such Party's material breach, default or failure in performance of
any material covenants, agreements, duties or obligations arising hereunder.
11.3 TERMINATION FEE.
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(a) Seller agrees that if this Agreement is terminated by
Buyer under paragraph (b) of Section 11.1 due to the failure of Seller to
consummate the transaction notwithstanding the satisfaction of all conditions to
Seller's obligations set forth in Section 10.2, Seller shall promptly and in any
event within ten days of such termination pay to Buyer, as liquidated damages, a
cash termination payment in an amount equal to $____________.
(b) Buyer agrees that if this Agreement is terminated by
Seller under paragraph (b) of Section 11.1 due to the failure of Buyer to
consummate the transaction notwithstanding the satisfaction of all conditions to
Buyer's obligations set forth in Section 10.1, Buyer shall promptly and in any
event within ten days of such termination pay to Seller, as liquidated damages,
a cash termination payment in an amount equal to $_________.
THE PARTIES AGREE THAT IN THE EVENT OF TERMINATION OF THIS AGREEMENT
DUE TO A MATERIAL BREACH OF COVENANT BY THE OTHER PARTY AS DESCRIBED IN SECTIONS
11.3(A) OR 11.3(B), IT WOULD BE IMPRACTICAL AND EXTREMELY DIFFICULT TO ESTIMATE
THE DAMAGES SUFFERED BY THE NONBREACHING PARTY AS A RESULT OF SUCH BREACH AND
RESULTING TERMINATION. THE PARTIES AGREE THAT UNDER THE CIRCUMSTANCES EXISTING
AS OF THE DATE OF THIS AGREEMENT, THE LIQUIDATED DAMAGES PROVIDED IN THIS
PARAGRAPH REPRESENT A REASONABLE ESTIMATE OF THE DAMAGES WHICH A PARTY WILL
INCUR AS A RESULT OF SUCH BREACH BY THE OTHER PARTY; PROVIDED, HOWEVER, THAT
THIS PROVISION WILL NOT WAIVE OR AFFECT EITHER PARTY'S INDEMNITY OBLIGATIONS
UNDER THIS AGREEMENT. THEREFORE, BUYER AND SELLER AGREE THAT A REASONABLE
ESTIMATE OF THE TOTAL NET DETRIMENT THAT THE NONBREACHING PARTY WOULD SUFFER IN
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THE EVENT OF THE OTHER PARTY'S BREACH IS AN AMOUNT EQUAL TO THE AMOUNT SET FORTH
IN THIS SECTION 11.3, AND THIS AMOUNT SHALL BE THE FULL, AGREED AND LIQUIDATED
DAMAGES UNDER THE FOREGOING CIRCUMSTANCES. THE FOREGOING AMOUNT IS NOT INTENDED
AS A FORFEITURE OR PENALTY WITHIN THE MEANING OF CALIFORNIA CIVIL CODE SECTIONS
3275 OR 3369, BUT IS INTENDED TO CONSTITUTE LIQUIDATED DAMAGES TO SELLER
PURSUANT TO CALIFORNIA CIVIL CODE SECTIONS 1671, 1676 AND 1677.
----------
Buyer's initials
-----------
Seller's initials
ARTICLE XII
EMPLOYEES
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12.1 EMPLOYEES. Buyer shall in good faith consider for employment all
employees of Seller at the Branches; PROVIDED, that the decision whether to
employ each such employee shall be made solely by Buyer in accordance with its
normal personnel policies, procedures and criteria. Buyer shall meet with the
Employees employed at the Branches no later than seven (7) days after the
transaction is communicated by the Seller to the Employees. Seller agrees to
give Buyer access to personnel files concerning each of the Employees employed
at the Branches within seven (7) days of receiving such Employee's written
consent for such release. Seller shall use commercially reasonable efforts to
obtain such consent from each of its Employees as soon as practicable after the
initial meeting with Employees employed at the Branches.
Beginning on the date on which any of Seller's Employees are hired by
Buyer, Buyer shall assume all obligations and liabilities which may arise as a
result of Buyer's employment of such Employees on or after such first date of
employment of such Employees. Nothing contained herein is to be construed as
offering or creating an employment contract for any such Employee or any other
obligation to employ such Employees. All Employees of the Branches will have
their earned compensation required to be paid by law, including without
limitation accrued vacation, paid in full by Seller through the Closing Date,
or, in the case of incentive based compensation earned prior to Closing, at such
time as such compensation is required to be paid in accordance with Seller's
compensation practices.
This Agreement is not intended to create and does not create any
contractual or legal rights in or enforceable by any Employee. Buyer agrees to
obtain prior approval of Seller before sending any communications to any
Employee employed at the Branches concerning the subject matter of this Section
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12.1, which approval shall not be unreasonably withheld, and Seller shall not
solicit any such Employees to remain employees of Seller unless Buyer has
decided not to offer employment to such Employee or such employee declines
Buyer's offer of employment. This Agreement may be amended or terminated without
liability to any Employee.
Buyer shall have the right but not the obligation prior to the Closing
to provide training to any Employees that will become employees of Buyer after
the Closing as set forth in this Section 12.1. Buyer may distribute Seller's
Employee training programs in CD/ROM form, and Employees may view such training
materials, at the Branches during business hours, at no expense to Buyer
provided that the distribution and viewing of such training materials shall not
materially interfere with the conduct of business at any Branch. Other training
shall be at the expense of Buyer and shall be conducted on Saturday or after
business hours at a location other than the Branches. Seller shall cooperate
with Buyer to use commercially reasonable efforts to make such Employees
available for such training prior to the Closing.
12.2 EMPLOYEE BENEFITS. All Employees at the Branches who become
employees of Buyer ("Transferred Employees") will, on and as of the Closing
Date, be immediately eligible to participate in employee benefit plans and other
fringe benefits and rights, including without limitation severance plans and
vacation pay, enjoyed by employees of Buyer in comparable positions including
any pension or 401(k) plans. For all employee benefit plans except any pension
or 401(k) plans, the Transferred Employees will be given immediate credit for
their length of service with Seller for all purposes.
ARTICLE XIII
OTHER AGREEMENTS
----------------
13.1 NOTICES TO DEPOSITORS. Seller shall provide Buyer, as soon as
practicable and in any event prior to the Closing, with a customer list
regarding the accounts to be assumed by Buyer as contemplated herein, together
with data tapes. On the Closing Date, Seller shall provide Buyer a final
customer list of the assumed accounts. At the time that Seller provides to Buyer
the customer lists pursuant to this paragraph, Seller shall notify Buyer of any
customer addresses which Seller is aware are invalid.
As soon as practicable after receipt of all required regulatory
approvals, Seller shall notify the holders of the Deposits to be assumed by
Buyer that, subject to closing requirements, Buyer will be assuming the
liability of the Deposits and may not continue services provided by Seller which
are not routinely offered by Buyer. The notification will be based on the list
and data tapes referred to in the preceding paragraph and a listing maintained
at Seller's Branch of the new accounts opened since the date of the list. Buyer
shall send notification to the same holders setting out the details of its
administration of the assumed accounts. Each Party shall obtain the approval of
the other of its notification letter(s), which approval shall not be
unreasonably withheld or delayed.
13.2 SAFE DEPOSIT BOXES. As soon as practicable after receipt of all
required regulatory approvals, the Seller shall notify by letter renters of Safe
Deposit Boxes located at the Branches of the disposition of their Safe Deposit
Boxes as of the Closing Date. In the event of removal of such boxes by Buyer to
a new location, the Parties agree to cooperate in the safe and lawful transfer
of such boxes. The costs and expenses incurred in the transfer and security of
such boxes will be borne by Buyer. All key or other deposits related to the Safe
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Deposit Boxes which are held by Seller shall be transferred to Buyer as of the
Closing Date as part of the Closing.
13.3 INCOMING DEPOSITS AND MAIL. In the event Seller receives after the
Closing Date, a deposit, payment, legal process or mail with respect to the
Assets or Deposits transferred to Buyer, Seller shall, at Seller's expense, mail
such deposit, payment, legal process or other mail to Buyer within one (1)
Business Day after receipt thereof at the address Buyer may from time to time
designate.
13.4 RETURNED ITEMS. Any items that were (i) credited for deposit to,
or (ii) cashed against, an account at the Branches prior to the Closing and are
returned unpaid at any time after the Closing and within the guidelines
specified under "Regulation CC" of the Federal Reserve System ("Returned Items")
will be handled as follows:
(a) If Seller is charged for the Returned Item, Seller shall
notify Buyer and if there are sufficient funds in the account to which such
Returned Item was credited or any other accounts on deposit with Buyer in the
name of the party liable for such Returned Item and which Buyer may lawfully
debit for such purpose, Buyer will debit any or all of such accounts an amount
equal in the aggregate to the Returned Item or all funds available in the
subject account, if less. If there are not sufficient funds in the accounts
which may be debited (for reasons other than Buyer's breach of Section 13.7),
Buyer will have no obligation to repay Seller unless and until Buyer obtains
reimbursement from the party liable for the Returned Item, and in such event
Buyer shall pay over to Seller the amount of such reimbursement, after reduction
by the amount of the applicable Deposit Premium Percentage thereof.
(b) If Buyer's bank account is charged for the Returned Item,
Buyer will use reasonable efforts to obtain reimbursement from the account to
which, or from the party to whom, the Returned Item was credited. If there are
sufficient funds in the account to which such Returned Item was credited or any
other accounts on deposit at any branch office of Buyer standing in the name of
the party liable for such Returned Item and which Buyer may lawfully debit for
such purpose, Buyer will debit any or all of such accounts in an amount equal in
the aggregate to the Returned Item. If those accounts do not contain funds
sufficient to reimburse Buyer fully (for reasons other than Buyer's breach of
Section 13.7), Seller will, upon notice from Buyer, immediately repay to Buyer
the amount of the Returned Item plus an amount equal to the applicable Deposit
Premium Percentage thereof and Buyer will assign the Returned Item to Seller.
For a reasonable period of time after reimbursement from Seller, Buyer will
cooperate with Seller in its efforts to obtain reimbursement from the party
liable for the Returned Item.
(c) Any items that were credited for deposit to or cashed
against an account at the Branches prior to the Closing Date and are returned
unpaid more than sixty (60) days after the Closing will be the responsibility of
Seller.
13.5 ACH ITEMS AND WIRE TRANSFERS. Buyer and Seller shall use
commercially reasonable efforts to transfer all ACH arrangements to Buyer as
soon as practicable after the Closing Date. Buyer shall continue such ACH
arrangements and such recurring debit and credit arrangements as are originated
and administered by third parties and for which Buyer need act only as
processor; Buyer shall have no obligation to continue recurring debit
arrangements that were originated or administered by Seller, and Seller shall
terminate such arrangements on or prior to the Closing Date. After the Closing
Date, Seller will use commercially reasonable efforts to (i) telecopy or deliver
to Buyer on each Business Day after receipt, at the address designated by the
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Buyer, a summary of ACH Items affecting the Deposits (such summary to include
claim number, suffix (if applicable), source name, trace id, client name and
effective date); and (ii) remit by wire transfer to Buyer all ACH Item funds
that are intended for Deposit accounts being transferred to Buyer; provided,
however, that Seller's obligation to deliver such summaries and to forward such
ACH Items shall continue for not more than one hundred and twenty (120) days
after the Closing Date, unless an extension is agreed upon. Extensions must be
agreed upon by Buyer and Seller not less than seven (7) days prior to the end of
such period. Thereafter, Seller will return all ACH Items to the originator
marked "Account sold to another DFI."
ACH transfers which have not been rerouted directly to Buyer after
sixty (60) days from Closing, shall be handled as follows: (i) Buyer shall
notify such ACH users that they must contact the ACH originator and complete the
transfer; (ii) if the transfer remains unconcluded after ninety (90) days from
Closing, Buyer shall renotify such ACH users that their ACH transaction will
cease to be processed within the one month period following said notification;
and, (iii) after one hundred twenty days (120) from Closing, Seller shall return
the ACH transaction to the originator, marked "Account sold to another DFI."
For a period of thirty (30) days from the Closing, Seller shall, upon
receipt thereof, notify Buyer of incoming wire transfers to an account(s) of a
Deposit transferred to Buyer at the Closing and shall use commercially
reasonable efforts to wire same to Buyer on the same day the funds of such
incoming wire transfer for the account(s) of such Deposit.
13.6 CHECKING ACCOUNTS. Within ten (10) Business Days following the
Closing Date, Buyer, at its sole expense, will mail to holders of those Deposits
acquired from Seller which may be accessed by checks, new checks MICR encoded
with Buyer's routing and transit numbers and the Buyer's customer identification
number. On a daily basis, Seller, at its sole expense, will outsort all Branch
checks received by it drawn on accounts assumed by Buyer and prepare them for
delivery within one Business Day to Buyer's service center at Buyer's expense.
Buyer shall either pay the items or return them in accordance with the customer
agreement and the California Uniform Commercial Code and all applicable federal
laws and regulations. Seller's obligation to outsort and deliver such Branch
checks shall continue for sixty (60) days after the Closing Date. After the
sixty (60) day period, Seller will stop accepting such items and will return
items marked "Refer to Maker."
Seller will furnish to Buyer a daily accounting of debits to its
clearing account. On a daily basis, Buyer and Seller will agree on the
settlement amounts of inclearing items transferred by Seller to Buyer. Buyer
will remit the settlement amount on the next Business Day, by immediately
available funds, to the Seller.
13.7 HOLDS. Holds that have been placed by Seller on particular
accounts or on individual checks, drafts, or other instruments and listed on the
schedule referred to in the next sentence will be continued by Buyer under the
same terms. Seller will deliver to Buyer at the Closing a schedule of such holds
which describes the terms thereof.
13.8 RETIREMENT ACCOUNTS. Buyer will assume certain Retirement Accounts
held at Seller's Branch according to the terms contained herein and in the
Retirement Accounts Transfer Agreement attached hereto as Exhibit D. Buyer shall
not collect an annual fee for 2000.
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13.9 CARD PROCESSING. Seller will void on and as of the Closing Date
all (i) ATM access cards issued by it to customers of the Branches who will not
have ATM-accessible accounts with Seller after the Closing Date and (ii) debit
cards issued by it to customers of the Branches who will not have debit
card-accessible accounts with Seller after the Closing Date. Seller will notify
the customer in writing as part of the notice requested under Section 13.1
above, of such cancellation of the ATM access cards and debit cards.
Seller agrees to provide to Buyer the necessary data and tapes
required, prior to the Closing Date, to accommodate the processing of ATM and
debit cards, which may then be issued prior to the Closing Date. Furthermore,
the Parties agree to settle within two (2) Business Days of the ATM transaction
date for transactions occurring prior to Closing or during the conversion period
and for customers with sufficient funds: (i) any and all rejected ATM and debit
card transactions processed after the Closing Date, and (ii) any and all ATM and
debit card transactions processed while the ATM or debit card network could not
communicate with Seller's main host. Buyer agrees to remit the total sum of such
transactions to Seller on the same date the transactions are settled.
Any claim submitted under "Regulation E" of the Federal Reserve System,
for transaction processed prior to the Closing Date on Deposits transferred to
Buyer, shall be settled as follows:
(a) If the claim is submitted to Seller, Seller shall process
the claim under the guidelines specified in "Regulation E," and if a
reimbursement to the customer is determined necessary, Seller shall directly
reimburse the customer.
(b) If the claim is submitted to Buyer, Buyer shall refer
claimant to Seller.
Such settlement shall continue for a period of sixty (60) days
following the Closing Date. All claims submitted after such sixty (60) day
period shall be returned by Seller to the originator of the claim.
13.10 DATA PROCESSING CONVERSION. The Parties agree to (i) insure the
orderly transfer of all data tapes and processing information, and will
facilitate an electronic and systematic conversion of all applicable data
regarding Account Loans, ATM Cards and Deposits whereby each Party will bear the
cost associated with the transfer of its tapes and information and the
conversion of its data except as otherwise agreed upon; (ii) at a field-to-field
meeting to be held at a time mutually acceptable to the parties but no later
than thirty (30) days after the Signature Date, exchange all data information
necessary to complete such conversion process; (iii) within ten (10) days after
such field-to-field meeting, Seller shall provide all systems information
necessary to complete such conversion processing and provide two (2) sets of the
initial data processing pre-conversion file layout and product definitions; (iv)
provide the final data processing pre-conversion file packages on a timely basis
allowing for pre-conversion; (v) provide any and all additional data processing
information added to the system subsequent to the preparation of the final
reconversion tapes on a day-to-day basis; and (vi) use commercially reasonable
efforts to provide by 12:00 p.m., on the day immediately following the Closing
Date, two (2) sets of final data processing conversion file packages.
Immediately prior to or at the date of conversion of the data
processing information at the Branches, Seller shall (i) deconvert accounts and
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block any further activity with respect thereto, (ii) cycle all accounts, and
(iii) prepare and send out account statements (and provide microfiche, if
available, to Buyer) dated as of the conversion date to all account holders.
13.11 INTEREST REPORTING. Seller shall report for the current calendar
year up through and including the Closing Date all interest credited to,
interest premiums paid, interest withheld and early withdrawal penalties charged
to the Deposits which are to be assumed by Buyer as contemplated by this
Agreement. Buyer shall report from but not including the Closing Date through
the end of the calendar year all interest credited to, interest withheld from,
and early withdrawal penalties charged to the Deposits assumed by Buyer. Said
reports shall be made to the holders of these accounts and to the applicable
federal and state regulatory agencies.
13.12 WITHHOLDING. Seller shall deliver to the Buyer on or before the
Closing Date data indicating all "B" notices (TINs do not match) and "C" notices
(under reporting/IRS imposed withholding) issued by the Internal Revenue Service
("IRS") relating to the Deposits transferred to Buyer. Furthermore, any and all
listings of similar notices regarding such Deposits received by Seller from the
IRS will be immediately delivered to Buyer. All notices received by Seller from
the IRS releasing withholding restrictions on Deposits transferred to Buyer will
be immediately delivered to Buyer. Any amounts required by any governmental
agency to be withheld from any of such Deposits (the "Withholding Obligations")
or any penalties imposed by any governmental agency will be handled as follows:
(a) Any Withholding Obligations required to be remitted to the
appropriate governmental agency on or prior to the Closing Date will be withheld
and remitted by Seller and any other sums withheld by Seller pursuant to
Withholding Obligations on or prior to the Closing Date shall also be remitted
by Seller to the appropriate governmental agency on or prior to the time they
are due.
(b) Any Withholding Obligations required to be remitted to the
appropriate governmental agency after the Closing Date with respect to
Withholding Obligations after the Closing Date and not withheld by Seller as set
forth in Section 13.12(a) above will be withheld and remitted by the Buyer.
Within two (2) days of receipt of such notice, Seller shall notify Buyer and
Buyer shall comply with notification requirements.
(c) Any penalties described on "B" notices from the IRS or any
similar penalties which relate to Deposit accounts opened by Seller prior to the
Closing Date will be paid by Seller promptly upon receipt of the notice
providing such penalty assessment resulted from Seller's acts, policies or
omissions. Similarly, any efforts to reduce such penalties shall be the
responsibility of Seller.
(d) Any penalties assessed due to information missing from
information filings regarding Deposits transferred to Buyer, including, without
limitation, 1099 forms, shall be paid by Seller. Seller shall pay such penalties
promptly upon receipt of the notice providing such penalty assessment resulting
from Seller's acts, policies or omissions, but shall be entitled to negotiate
such penalties with the IRS in good faith.
13.13 TAXPAYER INFORMATION. Seller shall deliver to Buyer within three
(3) Business Days after the Closing Date (i) TINs (or record of appropriate
exemption) for all holders of Deposit accounts transferred to Buyer as
contemplated hereby; and (ii) all other information in Seller's possession or
reasonably available to Seller required by applicable law to be provided to the
IRS and/or account holders with respect to the Assets and Deposits transferred,
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except for such information which Seller is obligated to make reports pursuant
to Sections 13.11 and 13.12 of this Agreement (collectively, the "Taxpayer
Information"). Seller hereby certifies that such information, when delivered,
shall accurately reflect the information provided by Seller's customers. Seller
shall, according to the terms of Section 14.2 of this Agreement, indemnify, hold
harmless and defend Buyer, Buyer's subsidiaries and Buyer's Affiliates from and
against any and all damages, losses, liabilities, costs, claims, obligations, or
expenses, including legal fees and expenses and fines and penalties arising from
or incurred or imposed in connection with any inaccuracy, act, or omission by
Seller in connection with the collection, recording, filing with appropriate
governmental agencies, or delivery to Buyer of the Taxpayer information.
13.14 SELLER'S COOPERATION. From and after the Closing, Seller shall
cooperate with Buyer and shall provide assistance in responding to inquiries and
requests of customers of the Branches relating to Deposits transferred to Buyer
at the Closing to the extent such inquiries and requests relate to facts and
circumstances that occurred prior to the Closing.
ARTICLE XIV
GENERAL PROVISIONS
------------------
14.1 SURVIVAL. The representations and warranties made by the Parties
to this Agreement, and their respective obligations to be performed under the
terms hereof at, prior to, or after the Closing, shall not expire with, or be
terminated or extinguished by, the Closing, notwithstanding any investigation of
the facts constituting the basis of the representations and warranties of either
Party by the other Party hereto; provided, however, that all representations and
warranties shall terminate and be of no further effect on the first anniversary
of the Closing Date other than the representations and warranties contained in
Sections 6.7 and 6.11, and, to the extent such representations and warranties
contained therein pertains to tax matters, Section 6.19, which shall survive
until the applicable statutory limitations period has expired; provided,
further, that the indemnification provisions of this Agreement shall, on and
after such dates, be limited to claims for damages, loss, liabilities, costs,
claims or expenses not arising from a misrepresentation or breach of warranty;
provided, further that notwithstanding the foregoing, such indemnification
provisions shall survive to the extent of any claim arising from a breach of a
representation and warrant as to which an Indemnified Party has provided written
notice to an Indemnifying Party pursuant to paragraph (c) of Section 14.2 prior
to the date provided in this Section 14.1 on which such representation and
warranty terminates.
14.2 INDEMNIFICATION.
(a) Seller shall indemnify, hold harmless and defend Buyer
(and its Affiliates, successors, directors, officers and employees) from and
against any and all damage, loss, liability, costs, claim or expense (including
reasonable legal fees and expenses) incurred or suffered by Buyer (or its
Affiliates, successors, directors, officers and employees) in connection with a
claim asserted by a third party arising from:
(1) any material misrepresentation or material breach of
warranty, covenant or agreement made or to be performed by Seller pursuant to
this Agreement;
(2) any action taken or omitted to be taken by Seller, or
any transaction or any event occurring on or prior to the Closing Date, relating
to the Assets (other than the Real Estate) or the Deposits, or any action taken
or omitted to be taken by Seller with respect to the Employees, other than as
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permitted by this Agreement and any suits or proceedings commenced in connection
therewith; and
(3) all debts, obligations and liabilities excluded
pursuant to Section 2.3(e) above, including without limitation any claims
arising from the contest by Seller of any tax liabilities described in Section
6.11.
(b) Buyer shall indemnify, hold harmless and defend Seller
(and its Affiliates, successors, directors, officers and employees) from and
against any and all damage, loss, liability, cost, claim or expense (including
reasonable legal fees and expenses) incurred or suffered by Seller (or its
Affiliates, successors, directors, officers and employees) in connection with a
claim asserted by a third party arising from:
(1) any material misrepresentation or material breach of
warranty, covenant or agreement made or to be performed by Buyer pursuant to
this Agreement, and
(2) any action taken or omitted to be taken by Buyer, or
any transactions or any event occurring after the Closing Date, relating to the
Assets (other than the Real Estate), or the Deposits, or any action taken or
omitted to be taken by Buyer with respect to the Employees, other than as
permitted by this Agreement, and any suits or proceedings commenced in
connection therewith.
(c) A Party seeking indemnification pursuant to this Section
14.2 (an "Indemnified Party") shall give prompt notice to the Party from whom
such indemnification is sought (the "Indemnifying Party") of the assertion of
any claim, or the commencement of any action or proceeding, in respect of which
indemnity may be sought hereunder. The Indemnified Party shall assist the
Indemnifying Party in the defense of any such action or proceeding. The
Indemnifying Party shall have the right to, and shall at the request of the
Indemnified Party, assume the defense of any such action or proceeding at its
own expense. In any such action or proceeding, the Indemnified Party shall have
the right to retain its own counsel, but the fees and expenses of such counsel
shall be at its own expense unless:
(1) the Indemnifying Party and the Indemnified Party
shall have mutually agreed to the retention of such counsel and the payment of
such counsel's fees and expenses, or
(2) the named Parties to any such suit, action or
proceeding (including any impleaded Parties) include both the Indemnifying Party
and the Indemnified Party and, in the reasonable judgment of the Indemnified
Party, representation of both Parties by the same counsel would be inappropriate
due to actual or potential conflicting interests between them.
(d) An Indemnifying Party shall not be liable under this
Section 14.2 for any settlement effected without its consent of any claim,
litigation or proceeding in respect of which indemnity may be sought hereunder.
The Indemnifying Party may settle any claim without the consent of the
Indemnified Party, but only if the sole relief awarded is monetary damages that
are paid in full by the Indemnifying Party. An Indemnified Party shall, subject
to its reasonable business needs, use reasonable efforts to minimize the
indemnification sought from the Indemnifying Party hereunder. Notwithstanding
the foregoing, no investigation by an Indemnified Party at or prior to the
Closing shall relieve an Indemnifying Party of any liability hereunder, unless
the Indemnified Party seeks indemnity in respect of a representation or warranty
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which it actually had reason to believe to be incorrect as a result of its
investigation prior to the Closing and the Indemnified Party intentionally
failed to bring such belief to the attention of the Indemnifying Party prior to
the Closing.
(e) Nothing in this Section 14.2 shall limit Buyer's or
Seller's rights or remedies for misrepresentations, breaches of this Agreement
or any other action or inaction by the other party hereto.
14.3 BROKER'S FEES. Seller has entered into an agreement with BankSite
whereby certain fees will be due to BankSite solely from Seller. Each of the
Parties represents and warrants to the other that, with the exception of such
engagement in the case of Seller: (i) it has dealt with no broker or finder in
connection with any of the transactions contemplated by this Agreement, and (ii)
no action has been taken that would give rise to any valid claim for brokerage
commission, finder's fee or other like commission. Buyer and Seller each
undertake to indemnify and hold each other harmless against any loss, liability,
damage, cost, claim or expense incurred by reason of any brokerage commission,
or finder's fee alleged to be payable because of any act, omission or statement
of the indemnifying Party.
14.4 PUBLICITY AND NOTICES. Prior to the announcement of this Agreement
to the Employees, both Parties will limit the distribution of information
relative to the transaction to those persons who must be aware of this Agreement
for the performance of their duties. No Party will issue a press release
announcing this Agreement or the transactions described herein to the public nor
make any public announcements of this Agreement or the transactions described
herein, without consulting with and obtaining approval of the other Party, which
approval shall not be unreasonably withheld, and in any event such initial
announcement shall not be made prior to notification to the Employees. Each
Party agrees to forward copies of any and all written public statements
following the initial announcement to the other Party for review and to consult
with such other Party with respect to any comments such Party may have for one
(1) Business Day after receipt by such Party of such proposed written statement.
14.5 [INTENTIONALLY DELETED]
14.6 ATTORNEYS' FEES. Each Party shall bear the cost of its own
attorneys' fees incurred in connection with the preparation of this Agreement
and consummation of the transactions described herein. Notwithstanding the
foregoing, in any action between the Parties seeking enforcement of any of the
terms and provisions of this Agreement, the prevailing Party in such action
shall be awarded, in addition to damage, injunctive or other relief, its
reasonable costs and expenses, not limited to taxable costs, and reasonable
attorneys' fees and expenses.
14.7 SALES AND TRANSFER TAXES. The Real Estate Agreement shall govern
the payment of taxes with respect to the Real Estate and the transfer thereof to
Buyer. All legally required California sales taxes payable upon transfer of the
Fixed Assets shall be paid by Buyer upon Buyer's receipt of satisfactory
evidence that Seller has paid such taxes or is legally obligated to pay such
taxes. Seller estimates based upon facts within its knowledge as of the date
hereof that such legally required sales tax liability shall not exceed $____.
14.8 NOTICES. All notices, requests, demands and other communication
given or required to be given under this Agreement shall be in writing, duly
addressed to the Parties as follows:
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To Seller: Fidelity Federal Bank, FSB
4565 Colorado Boulevard
Los Angeles, CA 90039
Attn: Senior Vice President, Retail Operations
With a Copy to: Fidelity Federal Bank, FSB
4565 Colorado Boulevard
Los Angeles, CA 90039
Attn: General Counsel
To Buyer: Jackson Federal Bank
599 North E Street
San Bernardino, California 92401
Attn: D. Tad Lowrey, President and Chief Executive Officer
Jackson National Life Insurance Company
5901 Executive Drive
Lansing, Michigan 48911
Attn: General Counsel
With a copy to: Mayer, Brown & Platt
350 South Grand Avenue, 25th Floor
Los Angeles, California 90071-1503
Attn: James R. Walther, Esq.
Any such notice sent by registered or certified mail, return receipt
requested, shall be deemed to have been duly given and received seventy-two (72)
hours after the same is addressed and mailed with postage prepaid. Notice sent
by any other manner shall be effective only upon actual receipt thereof.
14.9 ARM'S LENGTH TRANSACTION. This Agreement has been negotiated at
arm's length and between persons sophisticated and knowledgeable in the matters
dealt with this Agreement. In addition, each Party has been represented by
experienced and knowledgeable legal counsel. Accordingly, any rule of law
(including California Civil Code Section 1654) or legal decision that would
require interpretation of any ambiguities in this Agreement against the Party
that has drafted it is not applicable and is waived. The provisions of this
Agreement shall be interpreted in a reasonable manner to effect the purposes of
the Parties and this Agreement.
14.10 SUCCESSORS AND ASSIGNS. All of the terms and provisions of this
Agreement shall be binding upon and inure to the benefit of the Parties hereto
and their respective transferees, successors and assigns, but this Agreement may
not be assigned by any Party without the prior written consent of the other and
any attempted assignment by a Party without the other Party's consent shall be
null and void; PROVIDED, HOWEVER, that the foregoing shall not prohibit or
require the consent of the other Party for an assignment by a Party in
connection with a merger or consolidation of such Party with, or a sale of a
substantial portion of such Party's assets to, another federally insured
depository institution, provided such assignment shall not occur until the
expiration of one hundred and twenty (120) days from the Closing.
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14.11 THIRD PARTY BENEFICIARIES. Each Party hereto intends that this
Agreement shall not benefit or create any right or cause of action in or on
behalf of any person other than the Parties hereto.
14.12 GOVERNING LAW; VENUE. This Agreement shall be governed by and
construed in accordance with the laws of the State of California without regard
to the conflict of law provisions of the laws of such state. The Parties hereto
expressly submit to the exclusive jurisdiction and venue of the Superior Court
of the County of Los Angeles or the United States District Court for the Central
District of California (the "California Courts"). Subject to the arbitration
provisions of this Agreement, any action, suit or proceeding arising out of, or
relating to, this Agreement or any agreement or instrument delivered under this
Agreement, the subject matter thereof or the transactions contemplated hereby
shall be brought in the California Courts, and in such event the parties hereto
irrevocably submit themselves to the exclusive jurisdiction of the California
Courts and hereby waive, for themselves and their respective successors and
assigns, all rights they may have to bring or have tried elsewhere any such
action, suit or proceeding.
14.13 ARBITRATION.
NOTICE: BY INITIALLING IN THE SPACE BELOW, THE PARTIES ARE AGREEING TO
HAVE ANY DISPUTE ARISING OUT OF THE MATTERS INCLUDED IN THE DISPUTE RESOLUTION
PROVISION DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA LAW AND ARE
GIVING UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A COURT
BY JURY TRIAL. BY INITIALLING IN THE SPACE BELOW EACH PARTY GIVING UP ITS
JUDICIAL RIGHTS TO DISCOVERY AND APPEAL UNLESS SUCH RIGHTS ARE SPECIFICALLY
INCLUDED IN THE DISPUTE RESOLUTION PROVISION. IF ANY PARTY REFUSES TO SUBMIT TO
ARBITRATION AFTER AGREEING TO THIS PROVISION, SUCH PARTY MAY BE COMPELLED TO
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ARBITRATE UNDER THE AUTHORITY OF THE CALIFORNIA CODE OF CIVIL PROCEDURE. EACH
PARTY'S AGREEMENT TO THIS ARBITRATION PROVISION IS VOLUNTARY.
EACH PARTY HAS READ AND UNDERSTAND THE FOREGOING AND AGREES TO SUBMIT
DISPUTES ARISING OUT OF THE MATTERS INCLUDED IN THE DISPUTE RESOLUTION PROVISION
TO NEUTRAL ARBITRATION.
IF ANY DISPUTES OR CONTROVERSIES ARISE BETWEEN THE PARTIES IN
CONNECTION WITH THIS AGREEMENT, ITS INTERPRETATION, OR THE ACTS OR DUTIES OF THE
PARTIES HEREUNDER OR UNDER ANY DOCUMENT DELIVERED HEREUNDER, SUCH DISPUTES OR
CONTROVERSIES SHALL BE SUBMITTED TO AND RESOLVED BY BINDING ARBITRATION IN
ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA AND THE COMMERCIAL
ARBITRATION RULES OF THE AMERICAN ARBITRATION ASSOCIATION. ALL ARBITRATION
PROCEEDINGS SHALL BE CONDUCTED IN LOS ANGELES, CALIFORNIA BY A SINGLE
ARBITRATOR. THE DECISION OR AWARD OF THE ARBITRATOR SHALL BE FINAL AND BINDING,
AND JUDGMENT THEREON MAY BE ENTERED IN A CALIFORNIA COURT, AND THEREAFTER IN THE
COURT OF ANY SISTER STATE. IT IS UNDERSTOOD THAT THE ARBITRATOR SHALL HAVE NO
AUTHORITY TO ADD TO, SUBTRACT FROM, OR MODIFY ANY PROVISION OF THIS AGREEMENT.
----------
Buyer's initials
-----------
Seller's initials
14.14 ENTIRE AGREEMENT. This Agreement, including all schedules and
exhibits, contains all of the agreements of the Parties to it with respect to
the matters contained herein and no prior or contemporaneous agreement or
understanding, oral or written, pertaining to any such matters shall be
effective for any purpose. No provision of this Agreement may be amended or
added to except by an agreement in writing signed by the Parties hereto or their
respective successors in interest and expressly stating that it is an amendment
of this Agreement.
14.15 HEADINGS. The headings of this Agreement are for purposes of
reference only and shall not limit or define the meaning of the provisions of
this Agreement.
14.16 SEVERABILITY. If any paragraph, section, sentence, clause or
phrase contained in this Agreement shall become illegal, null or void or against
public policy, for any reason, or shall be held by any court of competent
jurisdiction to be illegal, null or void or against public policy, the remaining
paragraphs, sections, sentences, clauses or phrases contained in this Agreement
shall not be affected thereby.
14.17 WAIVER. The waiver of any breach of any provision under this
Agreement by any Party hereto shall not be deemed to be a waiver of any
preceding or subsequent breach under this Agreement. Any waiver of any provision
of this Agreement shall be in writing executed by the party granting such
waiver.
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14.18 NUMBER(S). Whenever the context of this Agreement so requires,
the singular includes the plural, the plural includes the singular, the whole
includes any part thereof.
14.19 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original but all of which shall
constitute one and the same instrument
14.20 TIME IS OF THE ESSENCE. TIME IS OF THE ESSENCE WITH RESPECT TO
EACH AND EVERY PROVISION OF THIS AGREEMENT
14.21 SPECIFIC PERFORMANCE AND LIS PENDENS. In the event the
transactions do not occur due to a material default by Seller, Buyer as its sole
remedy shall be entitled to damages in accordance with the provisions of this
Agreement or otherwise available under law. As a material consideration to
Seller's entering into this Agreement with Buyer, Buyer waives any right (a) to
record or file a notice of lis pendens or notice of pendency of action or
similar notice against any of the Real Estate or (b) to pursue an action for
specific performance of this Agreement.
IN WITNESS WHEREOF, the Parties hereto have duly authorized and
executed this Agreement as of the date first above written.
FIDELITY FEDERAL BANK, JACKSON FEDERAL BANK
A Federal Savings Bank
By: /s/ D. TAD LOWREY
By: /s/ JAMES E. STUTZ -------------------------------
-------------------------------------- D. TAD LOWREY
JAMES E. STUTZ
President and Chief Operating Officer Its: President and Chief Executive
Officer
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EXHIBIT A
---------
MORTGAGE LOAN PURCHASE AGREEMENT
--------------------------------
This MORTGAGE LOAN PURCHASE AGREEMENT (this "AGREEMENT"),
dated as of February 3, 2000, by and between JACKSON FEDERAL BANK, a federally
chartered savings bank having an office at 599 North "E" Street, San Bernardino,
CA 92401 ("PURCHASER"), and FIDELITY FEDERAL BANK, A FEDERAL SAVINGS BANK, a
federally chartered savings bank having an office at 4565 Colorado Boulevard,
Los Angeles, California 90039 ("SELLER").
W I T N E S S E T H:
- - - - - - - - - --
WHEREAS, Seller holds certain mortgage loans secured by
multifamily properties;
WHEREAS, Purchaser agrees to purchase from Seller, and Seller
agrees to sell to Purchaser, mortgage loans in the approximate aggregate
principal amount of up to $125,000,000, all of which are secured by an interest
in Multifamily Real Property, pursuant to the terms and provisions set forth in
this Agreement; and
WHEREAS, Purchaser and Seller wish to prescribe the manner of
the conveyance, transfer and sale of the mortgage loans.
NOW, THEREFORE, in consideration of the premises and mutual
agreements set forth herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Purchaser and Seller
agree as follows:
ARTICLE I
DEFINITIONS
-----------
For purposes of this Agreement the following capitalized terms
shall have the respective meanings set forth below.
ALTA means the American Land Title Association.
ASSIGNMENT OF MORTGAGE means an assignment of the Mortgage or
equivalent instrument in recordable form, sufficient under the laws of
California to effect the sale of the Mortgage to Purchaser.
BRANCH CLOSING means the closing of the transactions contemplated by
the Branch Sale Agreement
BRANCH SALE AGREEMENT means that certain Agreement to Purchase Assets
and Assume Liabilities, dated as of February 3, 2000, by and between
Seller and Purchaser.
<PAGE>
BUSINESS DAY means any day other than (i) a Saturday or Sunday, or (ii)
a day on which banking and savings and loan institutions in the State
of California are authorized or obligated by law or executive order to
be closed.
CERTIFICATE OF DEFECT means a certificate in the form of Exhibit A,
appropriately completed, which shall (1) identify a Mortgage Loan with
respect to which a breach of a representation or warranty is alleged to
have occurred; (2) describe in reasonable detail the nature of the
breach; and (3) as appropriate, refer to the section (and subsection)
of this Agreement under which such breach is claimed.
CLAIM means any claim, demand or legal proceeding.
CLOSING DATE means the date of the Branch Closing, as set forth in the
Branch Sale Agreement, or such other date as the parties mutually
agree.
CLTA means the California Land Title Association.
CURE PERIOD means, with respect to a Defective Mortgage Loan, the
period of 60 calendar days commencing on the date Purchaser delivers to
Seller a Certificate of Defect pursuant to Section 5.2 with respect to
such Mortgage Loan.
CURRENT MORTGAGE LOAN means a Mortgage Loan for which the last
scheduled payment of debt service is not more than 30 days past due
(without regard to any grace period) on and as of the Determination
Date.
DEFECTIVE MORTGAGE LOAN means a Mortgage Loan as to which (1) there
exists a breach of a representation or warranty contained in Section
6.2, which breach materially and adversely affects the value of such
Mortgage Loan, and (2) Purchaser has timely delivered to Seller a
Certificate of Defect pursuant to Section 5.2.
DELETED MORTGAGE LOAN means a Mortgage Loan that has been withdrawn or
deleted by Seller and deleted from the Final Mortgage Loan Schedule
because it is a Defective Mortgage Loan.
DETERMINATION DATE means a date to be agreed upon by the parties, which
date shall be at least three (3) business days prior to the Closing
Date.
DUE DILIGENCE MATERIALS means all information prepared by Seller in
connection with the conduct of Purchaser's due diligence.
EXCLUDED DOCUMENTS means (i) any reports, analyses, valuations and
memoranda generated internally by Seller or by any of its consultants
other than any of such reports, analyses, valuations and memoranda
included in the Due Diligence Materials, (ii) any information with
respect to which Seller in good faith believes itself to be under a
duty of confidentiality and nondisclosure, or (iii) any confidential
communications between Seller and its legal counsel, including, without
limitation, any documents and communications that are subject to the
attorney-client privilege; PROVIDED, HOWEVER, that Excluded Documents
(A) shall not include any documents essential to Purchaser's ability to
acquire title to the Mortgage Loans, to own and service such Mortgage
Loans or to complete its due diligence in a commercially reasonable
A-2
<PAGE>
manner with respect to such Mortgage Loans and (B) shall not include
documents relating to any litigation, arbitration or similar proceeding
involving a Mortgage Loan.
FINAL MORTGAGE LOAN SCHEDULE means the schedule to be prepared
identifying the Mortgage Loans to be transferred at Closing and setting
forth the Unpaid Principal Balance of each of the Mortgage Loans as of
the Determination Date.
INITIAL MORTGAGE LOAN SCHEDULE means the schedule attached hereto as
Schedule 1 identifying the Mortgage Loans to be transferred and setting
forth the Unpaid Principal Balance of each of the Mortgage Loans as of
the date set forth therein.
INTEREST-PAID-TO DATE means, for a Mortgage Loan, the date to which
interest payments have been made and credited, as set forth on the
Final Mortgage Loan Schedule.
INTERESTED PERSON means a person that is a Mortgagor or other obligor,
or has an affiliate that is a Mortgagor or other obligor.
LOAN AND COLLATERAL DOCUMENTS means, for each Mortgage Loan, the
Mortgage Note, the Mortgage and any other documents or instruments in
Seller's possession creating or relating to the security for the
Mortgage Note.
MORTGAGE means the mortgage, deed of trust or other instrument securing
a Mortgage Note, which creates a lien on the estate in the real
property securing the Mortgage Note.
MORTGAGE FILE means, with respect to any Mortgage Loan the credit file,
servicing or management file, correspondence and other documents
relating to such Mortgage Loan in the possession of Seller, including a
tax printout for such Mortgage Loan, but excluding any Excluded
Documents.
MORTGAGE INTEREST RATE means the periodic interest rate established
pursuant to the terms of a Mortgage Note.
MORTGAGE LOAN means one of approximately $125,000,000 in aggregate
principal balance of the whole mortgage loans transferred and sold
hereunder, as set forth on the Final Mortgage Loan Schedule; the term
"Mortgage Loan" shall include any mortgage loan on the Initial Mortgage
Loan Schedule and any Substitute Mortgage Loan substituted for a
Defective Mortgage Loan after the Determination Date in accordance with
the terms of this Agreement, and shall exclude any Deleted Mortgage
Loans.
MORTGAGE NOTE means the note or other evidence of the indebtedness of a
Mortgagor secured by a Mortgage and evidencing a Mortgage Loan.
MORTGAGED PROPERTY means the real property (including all improvements,
buildings, fixtures, building equipment and personal property thereon
and all additions, alterations and replacements made at any time with
respect to the foregoing) and all other collateral securing repayment
of the debt evidenced by a Mortgage Note.
MORTGAGEE means Seller, Purchaser or any subsequent holder of a
Mortgage Loan.
MORTGAGOR means the obligor on a Mortgage Note.
A-3
<PAGE>
MULTIFAMILY REAL PROPERTY means a fee or leasehold interest in real
estate improved with a five-or-more-unit residential dwelling.
PERMITTED INSURANCE EXPENSES means amounts paid by or for the account
of Purchaser for premiums for hazard and flood insurance on a Mortgaged
Property, which insurance has commercially customary and reasonable
terms, exclusions and deductible amounts; PROVIDED that such premiums
with respect to a Mortgaged Property shall be "Permitted Insurance
Expenses" only if the related Mortgagor has failed to pay such premiums
and either (1) Purchaser paid such premiums prior to delivery of any
required notice to Mortgagor in order to avoid an imminent lapse of
insurance coverage and, immediately thereafter, delivered any required
notice to the related Mortgagor of its failure to so pay, or (2) absent
such imminent lapse, Purchaser first delivered any required notice of
Mortgagor's failure to so pay after which Mortgagor failed to so pay,
and as a result of such failure, the Mortgaged Property would be
uninsured or underinsured, but for such payment by Purchaser.
PERMITTED REAL ESTATE TAX EXPENSES means amounts paid by or for the
account of Purchaser for real estate taxes on a Mortgaged Property when
(1) Purchaser first delivered any required notice under the Mortgage of
Mortgagor's failure to pay the real estate taxes, after which Mortgagor
(or a receiver, if applicable) failed to so pay, and (2) payment is
required to avoid the imposition of interest and/or penalties.
PERSON means an individual, corporation, partnership, limited liability
company, joint venture, association, joint stock company, trust, bank,
unincorporated organization or government or any agency or political
subdivision thereof.
PRINCIPAL PAYMENTS means with respect to a Mortgage Loan, all principal
payments of any nature on account of such Mortgage Loan, and proceeds
of any casualty, condemnation, foreclosure or repossession to the
extent applied to the principal balance of such Mortgage Loan, and
payments of any such principal by any guarantors of such Mortgage Loan,
received by or for the account of Purchaser, less any reasonable costs
and expenses incurred by Purchaser in good faith (provided that if such
collection is undertaken by Purchaser, the costs incurred do not exceed
amounts that would otherwise be paid to unaffiliated third-party
service vendors) in connection with the collection of the foregoing
amounts.
PURCHASER means Jackson Federal Bank, a federally chartered savings
bank.
REMITTANCE DATE means the date that is five Business Days after the
applicable Servicing Cut-Off Date.
REPURCHASE PRICE means _____% of the then unpaid principal balance of
the Defective Mortgage Loan plus accrued interest, as of the date of
repurchase of such Mortgage Loan.
SELLER means FIDELITY FEDERAL BANK, A FEDERAL SAVINGS BANK, a federally
chartered savings bank.
A-4
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SERVICING CUT-OFF DATE means the last calendar day of each month after
the Closing Date, to and including the last calendar day of the month
preceding the month in which the Servicing Transfer Date occurs, and
the Servicing Transfer Date.
SERVICING TRANSFER DATE means a date mutually acceptable to Seller and
Purchaser that shall occur not more than 30 days following the Closing.
SUBSTITUTE MORTGAGE LOAN means a mortgage loan, selected by Seller and
reasonably acceptable to Purchaser, that has yields and all other
material characteristics that are substantially similar to those
represented with respect to a Mortgage Loan on the Initial Mortgage
Loan Schedule.
SUBSTITUTION ADJUSTMENT means the difference between (A) _____% of the
then unpaid principal balance of the Substitute Mortgage Loan(s) plus
accrued interest thereon up to the date of such substitution and (B)
the Repurchase Price for the Defective Mortgage Loan(s) for which such
Substitute Mortgage Loan(s) are being substituted.
SUBSTITUTION NOTICE means a notice in the form of Exhibit B.
SURVIVAL TERMINATION DATE means the date that is the first anniversary
of the Closing Date.
TERMINATION EVENT means any action or failure to act that results in
one or more of the following occurrences with respect to a Mortgage
Loan: discounted or complete payoff, restructure, extension or
modification of all or any portion of such Mortgage Loan or the
realization upon any collateral securing such Mortgage Loan whether by
judicial or nonjudicial foreclosure, deed in lieu, UCC sale, bankruptcy
transfer or any other means, or Seller's rights having been materially
and adversely affected in a judicial or nonjudicial foreclosure
proceeding or bankruptcy proceeding or the release of all or any
portion of such collateral or any agreement to forbear from exercising
any remedies in connection with a material default under such Mortgage
Loan, or the conversion of a nonjudicial foreclosure to a judicial
foreclosure.
TOTAL PURCHASE PRICE means a sum equal to _____% of the aggregate sum,
for all Mortgage Loans, of the Unpaid Principal Balance of each
Mortgage Loan as set forth on the Final Mortgage Loan Schedule, plus
accrued interest or minus prepaid interest on each Mortgage Loan from
the Interest-Paid-To Date to the Closing Date at the applicable
Mortgage Interest Rate.
UNPAID PRINCIPAL BALANCE means (i) for each Mortgage Loan set forth on
the Final Mortgage Loan Schedule, the principal balance of such
Mortgage Loan, as set forth on the Mortgage Loan Schedule as of the
Determination Date and (ii) for each Substitute Mortgage Loan which is
substituted for a Deleted Mortgage Loan, the principal balance of such
Mortgage Loan on the date of substitution.
ARTICLE II
PURCHASE AND SALE OF MORTGAGE LOANS
-----------------------------------
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SECTION 2.1 PURCHASE AND SALE. Subject to the terms and provisions set
forth in this Agreement, on the Closing Date, Seller shall sell and Purchaser
shall purchase the Mortgage Loans and pay to Seller the Total Purchase Price for
the Mortgage Loans.
SECTION 2.2 PAYMENT OF THE PURCHASE PRICE. Upon satisfaction of the
conditions precedent to the obligations of the parties set forth in Sections 4.4
and 4.5, Purchaser shall pay to Seller the Total Purchase Price by means of a
credit to reduce the amount that would otherwise be due from Seller to Purchaser
in connection with the Branch Closing (subject to certain adjustments in
connection with the Mortgage Loans as described in Sections 2.3 and 5.4 on the
Closing Date).
SECTION 2.3 CREDITS, PRORATIONS AND PAYMENTS ON THE MORTGAGE LOANS.
(a) POST-CLOSING PAYMENTS/REFUNDS RECEIVED BY SELLER OR
PURCHASER. Amounts received on the Mortgage Loans by Seller after the
Determination Date shall, except as otherwise provided in this Section 2.3, be
credited to the account of Purchaser and shall be remitted to Purchaser on the
Remittance Date relating to the next Servicing Cut-Off Date after such amounts
are received, or shall be applied against any amounts then owing by Purchaser to
Seller in connection with this Agreement.
(b) PAYMENTS BY SELLER OF CERTAIN EXPENSES. In the event that
Seller has funded sums in relation to the Mortgage Loans, which sums were used
to pay for utilities, taxes, management fees, repairs, commissions, insurance or
other matters relating to the Mortgaged Property, Purchaser agrees that, except
in its capacity as interim servicer and before the Servicing Termination Date,
Seller is under no duty or obligation to continue funding such sums and Seller
may cease or refuse to fund any such sums at any time. In such event, Seller
will not be responsible for the unpaid expenses or any other costs and expenses
resulting from any such action. In the event that, prior to the Servicing
Transfer Date, Seller, in its capacity as interim servicer, elects not to
continue funding such sums relating to any Mortgage Loan(s), Seller shall
provide notice of this fact to Purchaser, at which point Purchaser may notify
Seller in writing to pay any such sums. Purchaser's delivery of such notice to
Seller shall be deemed automatically to be an acceptance of such Mortgage
Loan(s) as of the date of delivery of such notice to Seller and Purchaser shall
be responsible for any reimbursement to Seller pursuant to Section 2.3(d) or
Section 3.6.
(c) CHARACTERIZATION OF PAYMENTS. The characterization of
payments received as principal or interest on a Mortgage Loan prior to the
Servicing Transfer Date shall be determined by Seller in accordance with the
terms of the Mortgage Note and the Mortgage.
(d) POST-CLOSING ADJUSTMENTS. If the amounts required to be
paid or credited pursuant to this Section 2.3 cannot be precisely determined by
the Closing Date, or were not determined accurately on or before the Closing
Date, Seller and Purchaser shall make the necessary determination or
redetermination promptly following the Closing and Seller and Purchaser shall
make the necessary adjustments as of 30 days after the Closing Date. Forty-five
(45) days after the Closing Date, each party shall remit to the other those
payments due to the other party under this Section 2.3 and shall deliver to the
other an accounting of the amounts so remitted for the benefit of the party
entitled to the same.
ARTICLE III
INTERIM SERVICING OF THE MORTGAGE LOANS
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SECTION 3.1 TRANSFER OF SERVICING TO PURCHASER; INTERIM SERVICING.
Until the Closing Date, the servicing obligations, liabilities, and
responsibilities with respect to the Mortgage Loans shall be the responsibility
of Seller. On the Closing Date, all servicing rights and responsibilities with
respect to the Mortgage Loans shall be released to Purchaser. Seller shall
continue to service the Mortgage Loans, on Purchaser's behalf as interim
servicer, (i) for a fee equal to __________ percent (_____%) per annum of the
Unpaid Principal Balance of the Mortgage Loans; PROVIDED, that Seller shall also
be entitled to retain, as additional fees for its services as interim servicer,
late fees, assumption fees, check return fees and other fees customarily
retained by servicers. Seller shall be entitled to retain the applicable interim
servicing fee from collections on the Mortgage Loans. Seller shall conduct its
interim servicing activities in accordance with the policies and procedures
Seller utilizes in servicing mortgage loans for its own portfolio and in
accordance with this Article III.
SECTION 3.2 SERVICING REMITTANCES. Seller shall remit to Purchaser, by
wire transfer, on each Remittance Date during the Interim Servicing Period all
payments of any kind received in respect of a Mortgage Loan which payments came
due after the Determination Date but before the Servicing Cut-Off Date.
SECTION 3.3 ADVANCES. Seller shall not be required, as interim
servicer, to make any servicing advance on any Mortgage Loan unless Seller has
concluded that such advance will be reimbursable from payments in respect of the
Mortgage Loans, including by netting such advances from the final remittance
described in Section 3.6 below. In the event that, prior to the Servicing
Transfer Date, Seller, in its capacity as interim servicer, elects not to make a
servicing advance on any Mortgage Loan(s), Seller shall provide notice of this
fact to Purchaser, at which point Purchaser may notify Seller in writing to make
such servicing advance on behalf of Purchaser. Purchaser's delivery of such
notice to Seller shall be deemed automatically to be an acceptance of such
Mortgage Loan(s) as of the date of delivery of such notice to Seller and
Purchaser hereby agrees that Seller shall be able to net such advances from the
final remittance described in Section 3.6 below or to otherwise recover such
advances from Purchaser if there are not sufficient funds available pursuant to
Section 3.6 to recover such advances.
SECTION 3.4 REPORTING REQUIREMENTS. Seller shall be responsible for all
Internal Revenue Service and other tax agency reporting requirements with
respect to the Mortgage Loans until the Servicing Transfer Date. Seller shall
file with the taxing authorities within the time periods required by law all
year-to-date 1099s and other similar reporting documents up to the Servicing
Transfer Date, and Purchaser shall be responsible for all such reporting
requirements after the Servicing Transfer Date. Prior to the Servicing Transfer
Date, Seller, in its capacity as interim servicer, shall, on or before the
twentieth day of each month until the Servicing Transfer Date, provide Purchaser
with a monthly report regarding delinquencies on the Mortgage Loans
SECTION 3.5 ESCROW ACCOUNTS. On the Servicing Transfer Date, all escrow
accounts held by or on behalf of Seller for taxes, governmental assessments,
deposits, security deposits, utility deposits, replacement reserves and
insurance, or other funds relating to the Mortgage Loans, including all accrued
interest on funds in such accounts (with such accrued interest being calculated
at the rate payable to the Mortgagor), and all records relating to such
accounts, shall be assigned, transferred and paid over to Purchaser. All such
funds transferred to Purchaser shall be applied by Purchaser for their
designated purposes for the designated Mortgaged Property in accordance with the
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applicable Mortgage, contract or lease or pursuant to an applicable court order,
if any. Seller has no actual knowledge that the amounts in any such escrows are
not the full amounts required to be paid to Seller under any Mortgage or other
contract affecting the related Mortgage Loan. Purchaser will indemnify, defend
and hold Seller harmless from and against any and all claims, damages,
liabilities, costs and expenses (including attorneys' fees) arising or resulting
from or in connection with, or otherwise relating to such escrow accounts to the
extent that any such claim, damage, liability, cost or expense relates to
matters arising after the Servicing Transfer Date.
SECTION 3.6 REMITTANCE AFTER SERVICING TRANSFER DATE. On or prior to
five Business Days after the Servicing Transfer Date, Seller shall make a final
remittance to Purchaser of payments received on the Mortgage Loans up to and
including the Servicing Transfer Date, from which may be deducted any
unreimbursed advances with respect to the Mortgage Loans or any other amounts
due to Seller.
SECTION 3.7 ADDITIONAL SERVICING COVENANTS.
(a) DELIVERY OF MORTGAGE FILES. As soon as practicable, and in
no event later than ten (10) days, after the Servicing Transfer Date, Seller
shall deliver to Purchaser at Seller's sole expense, at such location or
locations in the United States as may be selected by Purchaser, such originals
of documents in the Mortgage File as were not delivered at Closing with respect
to each Mortgage Loan that remain in the possession of Seller.
(b) ACCESS TO RECORDS. After the date hereof and ending on the
date that Seller delivers the Mortgage Files for the applicable Mortgage Loan,
Seller shall, upon reasonable notice, make available to Purchaser, at
Purchaser's sole expense, the Mortgage Files, other than Excluded Documents.
(c) INSURANCE. Until the Servicing Transfer Date, Seller, in
its capacity as interim servicer, will monitor hazard insurance, and, if
required, flood insurance, for each Mortgage Loan and will arrange for the force
placement of hazard insurance in the event that such insurance is not in place
for any Mortgage Loan. For each Mortgage Loan, Seller shall prepare and mail to
each hazard and casualty insurer, and to the writing agent for each flood hazard
insurer, for each applicable Mortgage Loan, a request for an endorsement of the
applicable policy of insurance for the purposes of adding, effective on the
Servicing Transfer Date, Purchaser and its successors and assigns, as the
mortgagee or insured named therein. Seller shall be responsible for the
preparation and mailing of such requests at Seller's sole expense.
Notwithstanding the foregoing, in the event that Seller discovers that any
Mortgage Loans are covered under Seller's blanket insurance policy, Seller shall
promptly provide written notice of such fact to Purchaser and Purchaser shall be
required to obtain its own insurance coverage for any such Mortgage Loans rather
than being added to the existing policy.
ARTICLE IV
CLOSING
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SECTION 4.1 CLOSING. The Closing of the purchase and sale of the
Mortgage Loans shall be held concurrently with the Branch Closing under the
Branch Sale Agreement, at the offices of Seller, or such other place as Seller
and Purchaser shall mutually agree.
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SECTION 4.2 SELLER'S CLOSING ITEMS. At the Closing, Seller agrees to
execute and deliver or provide (or cause to be delivered and provided) to
Purchaser the following:
(a) For each Mortgage Loan:
(i) original Mortgage Note, duly endorsed without recourse or
representation or warranty of any nature (except as specifically set
forth herein);
(ii) the original recorded Mortgage accompanied by the
original intervening assignments, showing a complete chain of title to
Seller, or certified copies thereof;
(iii) to the extent possessed by Seller or reasonably
obtainable by Seller, the originals of all other material Loan and
Collateral Documents, or if not so possessed, copies thereof;
(iv) an original Mortgage Assignment in form customary and
appropriate for recording in the land records in the jurisdiction in
which the related Mortgaged Property is located;
(v) a UCC-2 form or its equivalent, assigning to Purchaser
Seller's rights as secured party under any financing statements related
to any Mortgage Loan for which a UCC-1 financing statement is in place
and has not previously been terminated;
(vi) an assignment or other instrument assigning to Purchaser
the rights of Seller under any security for such Mortgage Loan other
than the Mortgage, together with all rights of Seller, if any, arising
out of or in connection with any other document, instrument, property,
collateral or the like delivered to Seller or its predecessor in
interest in connection with such Mortgage Loan and all rights of Seller
arising out of any bankruptcy or foreclosure action or any pending
claim or action for amounts due Seller or its predecessor in interest
in connection with any of the Mortgage Loans (except as otherwise set
forth in this Agreement); and
(vii) an endorsement or other similar evidence of assignment
for any title insurance policy of Seller as may be reasonably requested
by Purchaser, at Purchaser's sole expense;
PROVIDED, HOWEVER, that if the Servicing Transfer Date does not occur
on the Closing Date, then Seller shall only be required to deliver the
items required by clause (i) above until such time as the Servicing
Transfer Date does occur, at which point Seller shall deliver all of
the remaining items listed in clauses (ii) through (vii) above; and
(b) Evidence reasonably required by the applicable title
insurer demonstrating that (i) Seller is an entity in good standing
under the laws of the jurisdiction in which it is formed, and (ii)
Seller's execution and delivery of this Agreement and the other
documents delivered pursuant hereto and the consummation of the
transactions contemplated hereby have been fully authorized by all
necessary corporate authority.
SECTION 4.3 PURCHASER'S CLOSING ITEMS. At the Closing, Purchaser shall
execute and deliver or provide (or cause to be delivered or provided) to Seller
the following:
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(a) A certificate of an officer of Purchaser certifying that (i)
Purchaser is an entity in good standing under the laws of the jurisdiction in
which it is formed, and (ii) Purchaser's execution and delivery of this
Agreement and the other documents delivered pursuant hereto and the consummation
of the transactions contemplated hereby have been fully authorized.
(b) Payment of the amounts due other than under Section 2.2, which
payment must be made by a wire transfer of immediately available federal funds
to:
Fidelity Federal Bank, FSB
Via FRB San Francisco
ABA No. 322270369
Attn: Capital Markets
SECTION 4.4 CONDITIONS TO PURCHASER'S OBLIGATIONS. The obligation of
Purchaser to purchase the Mortgage Loans pursuant to this Agreement is subject
to the fulfillment by Seller on or prior to the Closing Date of each of the
following additional conditions, except to the extent waived in writing by
Purchaser:
(a) Seller shall have delivered or caused to be delivered all the items
that are required to be delivered pursuant to Section 4.2.
(b) All representations and warranties of Seller set forth in Section
6.1 shall be true in all material respects at and as if made on the Closing
Date.
(c) All requisite federal, state and local governmental and regulatory
approvals relating to the transactions contemplated hereby, if any, required to
be obtained by Seller and Purchaser shall have been obtained.
(d) The Branch Closing and all transactions contemplated to occur at
the Branch Closing shall occur concurrently with the closing of the transaction
contemplated by this Agreement.
If all conditions under this Section 4.4 to Purchaser's obligation to complete
the Closing have been satisfied, Purchaser shall be obligated to purchase all of
the Mortgage Loans (except for a Deleted Mortgage Loan withdrawn by Seller prior
to the Closing Date) at the Closing for the Total Purchase Price (as the same
may be adjusted as described herein).
SECTION 4.5 CONDITIONS TO SELLER'S OBLIGATIONS. The obligation of
Seller to sell the Mortgage Loans pursuant to this Agreement is subject to the
fulfillment by Purchaser on or prior to the Closing Date of each of the
following additional conditions, except to the extent waived in writing by
Seller:
(a) Purchaser shall have paid and shall have executed and delivered, or
caused to be delivered, all the items specified in Section 4.3 in accordance
with the terms of Section 4.3.
(b) All requisite federal, state and local governmental and regulatory
approvals relating to the transactions contemplated hereby, if any, required to
be obtained by Purchaser and Seller shall have been obtained.
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(c) The Branch Closing and all transactions contemplated to occur at
the Branch Closing shall occur concurrently with the closing of the transaction
contemplated by this Agreement.
SECTION 4.6 TRANSFER AND RECORDATION TAXES; OTHER COSTS. At or prior to
Closing, Purchaser shall pay all transfer, filing and recording fees and taxes,
costs and expenses, and any state, county or city documentary taxes, if any,
relating to the filing or recording of any document or instrument contemplated
hereby or the sale or assignment of the Mortgage Loans. Purchaser shall be
solely responsible for the payment of any and all sales taxes, costs of title
insurance premiums, survey costs, and other expenses of title examination.
Seller and Purchaser shall sign and deliver on the Closing Date (or on such
earlier date as may be necessary to obtain approval if required in advance of
the Closing Date) all transfer tax and related forms reasonably required by the
other party or required by applicable law. Regardless of whether the
transactions contemplated hereunder are completed, except as otherwise provided
in Section 8.11, Purchaser shall pay all of its expenses in negotiating and
carrying out its obligations under this Agreement and the transactions
contemplated hereby, including its due diligence costs and the costs of its due
diligence providers, its counsel and title insurance.
ARTICLE V
LOAN SELECTION AND REMEDIES FOR DEFECTIVE MORTGAGE LOANS
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SECTION 5.1 DUE DILIGENCE GUIDELINES.
(a) DUE DILIGENCE ACCESS. Purchaser has reviewed all Due
Diligence Materials provided by Seller and, based thereon, has selected for
purchase hereunder those Mortgage Loans set forth on the Initial Mortgage Loan
Schedule. By execution of this Agreement, Purchaser hereby acknowledges that its
due diligence activities have been completed. Except with the written consent of
Seller, Purchaser and Purchaser's designated persons shall not contact, discuss,
respond to, inquire or provide information to any Mortgagor, guarantor of any
Mortgage Loan or any related Person prior to the Closing.
(b) INDEMNIFICATION. Purchaser shall indemnify, hold harmless
and defend Seller against, and hold Seller harmless from, all Claims and
liabilities resulting from Purchaser's activities under this Section 5.1.
(c) NO REIMBURSEMENT. No amounts that have been expended by
Purchaser for due diligence shall be reimbursed to Purchaser or credited to or
against the Total Purchase Price.
SECTION 5.2 PURCHASER'S CLAIM OF A DEFECTIVE MORTGAGE LOAN.
In order to make a claim that a Mortgage Loan is a Defective Mortgage
Loan based upon a breach of a representation and warranty under Section 6.2,
Purchaser must execute and deliver a Certificate of Defect for such Mortgage
Loan on or before the Survival Termination Date. If Purchaser fails to deliver
such Certificate of Defect within the applicable period, then such failure shall
terminate and extinguish any rights of Purchaser to submit a Certificate of
Defect, to require Seller to cure any defect in, delete, substitute for, or
repurchase, such Mortgage Loan as a result of such breach of a representation or
warranty under Section 6.2.
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SECTION 5.3 SELLER'S ELECTIONS FOR CLAIM OF DEFECTIVE MORTGAGE LOAN.
(a) By no later than five Business Days following its receipt
of a Certificate of Defect timely given under Section 5.2 that alleges a
material breach of a representation or warranty, Seller shall notify Purchaser
(A)(x) that Seller disputes (1) that the alleged breach exists, (2) that the
alleged breach is properly the subject of a Certificate of Defect pursuant to
this Agreement, or (3) that the breach materially and adversely affects the
value of the Mortgage Loan, and (y) of the basis for Seller's position; (B) that
Seller will attempt to cure such breach within the Cure Period or (C) that
Seller deletes such Mortgage Loan and elects to repurchase or substitute the
Mortgage Loan to which such Certificate of Defect relates.
(b) If Seller fails to make the election specified in
paragraph (a) of this Section 5.3 for a Mortgage Loan before the expiration of
the applicable five Business Day period, then Seller shall be deemed to have
elected to delete such Defective Mortgage Loan. In such event, Seller shall be
required to repurchase such Mortgage Loan pursuant to Section 5.6.
SECTION 5.4 DELETION OR SUBSTITUTION AT SELLER'S OPTION. If, prior to
the Closing Date, Seller reasonably believes that (a) there is a breach of a
representation or warranty of Seller with respect to a Mortgage Loan or (b) the
sale of a Mortgage Loan pursuant hereto violates any law, rule, regulation or
court order applicable to Seller or the Mortgage Loan, Seller shall provide
Purchaser with notice of same. In such event, the Mortgage Loan shall be
withdrawn (unless such notice is given under clause (a) and Purchaser waives
such breach in writing within five Business Days after receipt of such notice
from Seller) and the Total Purchase Price shall be reduced by the sum of
(i)_____% of the then unpaid principal balance of such Mortgage Loan plus (ii)
accrued interest on such Mortgage Loan up to the date of such withdrawal.
SECTION 5.5 SUBSTITUTION PROCEDURE. In the event that Seller elects to
substitute for a Mortgage Loan that is a Defective Mortgage Loan, Seller shall
send to Purchaser a Substitution Notice that (i) identifies the Mortgage Loan
that is proposed to be deleted from the Mortgage Loans to be sold hereunder and
the Substitute Mortgage Loans proposed to be substituted for such Mortgage Loan
and (ii) calculates the Substitution Adjustment. If the proposed Substitute
Mortgage Loan is accepted by Purchaser, (i) in the event the Substitution
Adjustment is a negative number, Seller shall pay such Substitution Adjustment
to Purchaser or shall reduce the Total Purchase Price correspondingly and (ii)
in the event the Substitution Adjustment is a positive number, Purchaser shall
pay such Substitution Adjustment to Seller or shall increase the Total Purchase
Price correspondingly. Seller shall deliver to Purchaser all items required
under Section 4.2 with respect to such Substitute Mortgage Loan and Purchaser
shall convey all of its right, title and interest in and to the Deleted Mortgage
Loan to Seller and shall make all deliveries and take all other actions on the
same terms and conditions under which Seller had conveyed such Mortgage Loan to
Purchaser. If Purchaser receives any amounts on account of such Mortgage Loan
after its conveyance to Seller that are payable to Seller pursuant to the terms
of this Agreement, it shall promptly forward such sums to Seller. If Seller
substitutes a Substitute Mortgage Loan for a Defective Mortgage Loan, the
deletion date for the Defective Mortgage Loan and the substitution date of the
Substitute Mortgage Loan (which shall be the same date) shall be specified in
such Substitution Notice and shall be a date occurring on or before the date
three Business Days following the date of the relevant Substitution Notice.
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SECTION 5.6 REPURCHASE OF MORTGAGE LOANS. In the event Purchaser timely
submits a Certificate of Defect under Section 5.2, Seller has the option (unless
it disputes the claims made in the Certificate of Defect) to cure such breach
within the time periods set forth herein. In the event Seller neither disputes
the claims made in such Certificate of Defect nor provides notice that it will
cure such breach, Seller shall repurchase such Defective Mortgage Loan for the
applicable Repurchase Price. In such event, Purchaser shall convey all of its
right, title and interest in and to the repurchased Deleted Mortgage Loan to
Seller and shall make all deliveries and take all other actions on the same
terms and conditions under which Seller had conveyed such Mortgage Loan to
Purchaser. If Purchaser receives any amounts on account of such Mortgage Loan
after its conveyance to Seller that are payable to Seller pursuant to the terms
of this Agreement, it shall promptly forward such sums to Seller.
SECTION 5.7 FAILURE TO CURE. If Seller has given Purchaser notice of
Seller's election to attempt to cure a breach pursuant to Section 5.3(a) but has
not cured such breach by the end of the applicable Cure Period, Seller shall be
deemed to have elected delete such Defective Mortgage Loan and to repurchase
such Mortgage Loan pursuant to Section 5.6.
SECTION 5.8 POST-CONVEYANCE DEFECTS. If a Defective Mortgage Loan has
any defect (other than a defect resulting solely from an action or omission of
Seller, or its predecessors in interest) that did not exist when such Mortgage
Loan was conveyed to Purchaser, Purchaser shall not be entitled to delete, or
require Seller to substitute a Substitute Mortgage Loan for, or to repurchase,
such Defective Mortgage Loan.
SECTION 5.9 WITHDRAWAL OF MORTGAGE LOAN. Notwithstanding any election
by Seller, in response to the submission by Purchaser of a Certificate of Defect
to cure or remediate any breach of a representation and warranty, Seller shall
have the right at its sole option to withdraw a Mortgage Loan prior to the
Closing Date (subject to Purchaser's right to withdraw such Certificate of
Defect).
SECTION 5.10 CREATION OF FINAL MORTGAGE LOAN SCHEDULE. On or before the
Business Day preceding the Closing Date, Seller shall prepare the Final Mortgage
Loan Schedule and shall deliver it to Purchaser for Purchaser's review and
confirmation. The Final Mortgage Loan Schedule shall, among other things,
identify for each Mortgage Loan that is not a Deleted Mortgage Loan, the Unpaid
Principal Balance thereof.
SECTION 5.11 SOLE REMEDY. The provisions of this Article V constitute
Purchaser's sole and exclusive remedies for breaches of Seller's representations
and warranties under Sections 6.2.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
------------------------------
SECTION 6.1 REPRESENTATIONS AND WARRANTIES RESPECTING SELLER. Seller
represents, warrants and covenants to Purchaser that on the date hereof and as
of the Closing Date:
(a) DUE ORGANIZATION AND AUTHORITY. Seller is a savings
association duly organized, validly existing and in good standing under the laws
of the United States of America and has all licenses necessary to carry on its
business as now being conducted and is licensed, qualified and in good standing
in each state where a Mortgaged Property is located, if the laws of such state
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require licensing or qualification in order to conduct business of the type
conducted by Seller, and in any event Seller is in compliance with the laws of
each such state to the extent necessary to ensure the enforceability of the
related Mortgage Loan and to provide the servicing of such Mortgage Loan; Seller
has the full corporate power, authority and legal right to acquire, transfer and
convey the Mortgage Loans and to execute and deliver this Agreement and to
perform in accordance with such agreements; the execution, delivery and
performance of this Agreement (including all instruments of transfer to be
delivered pursuant to this Agreement) by Seller and the consummation of the
transactions contemplated hereby have been duly and validly authorized; this
Agreement and all agreements contemplated hereby evidence the valid, legal,
binding and enforceable obligation of Seller, subject to bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting the
rights of creditors and to general principles of equity, regardless of whether
such enforcement is sought in a proceeding in equity or at law; and all
requisite corporate action has been taken by Seller to make this Agreement and
all agreements contemplated hereby valid and binding upon Seller in accordance
with their terms.
(b) ORDINARY COURSE OF BUSINESS. The consummation of the
transactions contemplated by this Agreement are in the ordinary course of
business of Seller, and the transfer, assignment and conveyance of the Mortgage
Notes and the Mortgages by Seller pursuant to this Agreement are not subject to
the bulk transfer or any similar statutory provisions in effect in any
applicable jurisdiction.
(c) NO CONFLICTS. Neither the execution and delivery of this
Agreement, the acquisition of the Mortgage Loans by Seller, the sale of the
Mortgage Loans to Purchaser or the transactions contemplated hereby to be
performed by Seller, nor the fulfillment of or compliance with the terms and
conditions of this Agreement by Seller, will conflict with or result in a breach
of any of the terms, conditions or provisions of Seller's charter or by-laws or
any legal restriction or any agreement or instrument to which Seller is now a
party or by which it is bound, or constitute a default or result in an
acceleration under any of the foregoing, or, subject to any applicable
regulatory approval or nonobjection (which Seller shall obtain or confirm on or
prior to the Closing Date), result in the violation of any law, rule,
regulation, order, judgment or decree to which Seller or its property is
subject, or result in the creation or imposition of any lien, charge or
encumbrance that would have an adverse effect upon any of its properties
pursuant to the terms of any mortgage, contract, deed of trust or other
instrument, or impair (i) the ability of Purchaser to realize on the Mortgage
Loans, including, without limitation, by transfer or sale thereof to third
parties, (ii) the value of the Mortgage Loans, or (iii) the ability of Purchaser
to realize on any related insurance policy.
(d) ABILITY TO PERFORM; SOLVENCY. Seller does not believe, nor
does it have any reason or cause to believe, that it cannot perform each and
every covenant contained in this Agreement. Seller is solvent and the sale of
the Mortgage Loans will not cause Seller to become insolvent. The sale of the
Mortgage Loans is not undertaken with the intent to hinder, delay or defraud any
of Seller's creditors.
(e) NO LITIGATION PENDING. There is no action, suit,
proceeding or investigation pending except as described by Seller in writing to
Purchaser or to Seller's actual knowledge threatened against Seller which,
either in any one instance or in the aggregate, would draw into question the
validity of this Agreement or the Mortgage Loans or of any action taken or to be
taken in connection with the obligations of Seller contemplated herein, or which
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would be likely to impair materially the ability of Seller to perform under the
terms of this Agreement.
(f) NO CONSENT REQUIRED. No consent, approval, authorization
or order of, or registration or filing with, or notice to any court or
governmental agency or body is required for the execution, delivery and
performance by Seller of or compliance by Seller with this Agreement or the sale
of the Mortgage Loans or the consummation by Seller of the transactions
contemplated by this Agreement, or if required, such approval will have been
obtained prior to the Closing Date.
(g) NO COMMISSIONS. Seller has not dealt with any person that
may be entitled to any commission or compensation from Seller or Purchaser in
connection with the execution, delivery and performance of this Agreement.
SECTION 6.2 SURVIVING REPRESENTATIONS AND WARRANTIES BY SELLER AS TO
INDIVIDUAL MORTGAGE LOANS. Seller represents with respect to each Mortgage Loan,
as of the date hereof and as of the Closing Date:
(a) SOLE OWNER. Seller is the sole owner and holder of such
Mortgage Loan, with full right and authority to sell, assign and transfer such
Mortgage Loan.
(b) NO MODIFICATION OR RELEASE. Except as disclosed in the
Mortgage File, Seller has not modified, in any material respect, satisfied,
cancelled or subordinated the Mortgage Loan nor has Seller released the
Mortgaged Property or any part thereof.
(c) NO SECURITY INTEREST. Seller is transferring such Mortgage
Loan free and clear of any and all liens, pledges, equities, charges, claims or
security interests of any nature encumbering such Mortgage Loan.
(d) ASSIGNMENT OF MORTGAGE; NOTE ENDORSEMENT. The related
Assignment of Mortgage constitutes the legal, valid and binding assignment of
such Mortgage. The endorsement of each Mortgage Note constitutes the legal,
valid and binding assignment of such Mortgage Note, and together with the
Assignment of Mortgage, legally and validly conveys all right, title and
interest in the subject Mortgage Loan to Purchaser.
(e) EACH HOLDER IS AUTHORIZED TO TRANSACT BUSINESS. To the
extent required under applicable law, each holder of the Mortgage Loan was
authorized to transact and do business in the jurisdiction in which the related
Mortgaged Property is located at all times when it held the Mortgage Loan.
(f) COMPLIANCE WITH APPLICABLE LAWS. Seller has complied with
all federal, state and local laws and regulations affecting the origination,
administration and servicing of the Mortgage Loans in all material respects.
(g) NO WAIVER. Except as may be disclosed in the Mortgage
File, Seller has not waived any material default, breach, violation or event of
acceleration of any of the Mortgage Loans, and, pursuant to the terms of the
Mortgage Loan, the related Mortgage or the related Mortgage Note, no Person
other than the holder of such Mortgage Note may declare an event of default or
accelerate the related indebtedness under any such Mortgage Loan, Mortgage or
Mortgage Note.
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(h) NO NOTICE OF BANKRUPTCY. Seller has not received any
notice that any Mortgagor is a debtor in any state or federal bankruptcy or
insolvency proceeding.
(i) VALIDITY OF DOCUMENTS. Each Mortgage Loan and each related
guaranty or other agreement is the legal, valid and binding obligation of the
maker, Mortgagor, guarantor or other party executing such document or agreement,
enforceable in accordance with its terms, except as such enforcement may be
limited by bankruptcy, insolvency, reorganization moratorium or other laws
relating to or affecting creditors' rights generally, and by general principles
of equity (regardless of whether such enforcement is considered in a proceeding
in equity or at law) and there is no offset, defense, counterclaim or right to
rescission with respect to such Note, Mortgage or other agreements.
(j) PROCEEDS FULLY DISBURSED. The proceeds of the Mortgage
Loan have been fully disbursed and there is no requirement for future advances
thereunder.
(k) FIRST LIEN. The Mortgage constitutes a valid, existing and
enforceable first lien on the Mortgaged Property securing the related Mortgage
Note, and the Mortgaged Property is free and clear of all encumbrances and liens
having priority over the lien of the Mortgage, except for such exceptions as are
set forth in paragraph (l) below. The Mortgaged Property consists of Multifamily
Real Property situated in the state of California.
(l) TITLE INSURANCE. Each Mortgage File contains an ALTA or
CLTA policy of title insurance, or equivalent coverage customarily approved by
institutional investors in the jurisdiction in which the related Mortgaged
Property is located, from a title insurance company qualified to do business in
the state of California. Such title policy is in an amount not less than the
original principal amount of the related Mortgage Loan, all premiums with
respect thereto have been paid in full and such policy is freely assignable
hereunder to Purchaser without the consent of the title insurer. Such policy of
title insurance insures that the Mortgage relating thereto has first priority
subject to (i) liens for real property taxes and assessments that were not then
due and payable, (ii) covenants, conditions and restrictions, rights of way,
easements and other matters of public record as of the date of recording of such
Mortgage acceptable generally to commercial mortgage lending institutions in the
area in which the related Mortgaged Property is located at the time the
Mortgaged Loan was made and (iii) such other matters to which like properties
are commonly subject that do not, individually or in the aggregate, materially
interfere with the current use of the Mortgaged Property or with the practical
realization of the benefits of the security intended to be provided by the
related Mortgage.
(m) CURRENT LOAN; DEFAULT, BREACH AND ACCELERATION. The
Mortgage Loan is a Current Mortgage Loan, and has been a Current Mortgage Loan
for the twelve (12) months preceding the date of this Agreement, and there is no
default, breach, violation or event of acceleration existing under the related
Mortgage or the related Mortgage Note and no event (other than payments due)
which, with the passage of time or with notice and the expiration of any grace
or cure period, would constitute a default, breach, violation or event of
acceleration.
(n) APPRAISAL. The Mortgage File contains an appraisal of the
related Mortgaged Property which appraisal is signed by an appraiser who, to
Seller's knowledge, had no interest, direct or indirect in the Mortgaged
Property or in any loan made on the security thereof, and whose compensation is
not affected by the approval or disapproval of the Mortgage Loan. Such appraisal
was in material compliance with applicable law and regulations at the time that
such appraisal was prepared.
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(o) CONDITION OF MORTGAGED PROPERTY. The Mortgaged Property
was in satisfactory condition at the time of origination of the Mortgage Loan;
PROVIDED that no representation or warranty is made with respect to compliance
with the Americans With Disabilities Act of 1990 (42 U.S.C. Section 126 et
seq.).
(p) NO CONDEMNATION. There is no proceeding pending, or to
Seller's knowledge threatened, for the partial or total condemnation of the
Mortgaged Property.
(q) TAXES, ASSESSMENTS AND OTHER CHARGES. As of the date
hereof, there are no delinquent and unadvanced taxes, (ii) delinquent
governmental assessments, (iii) delinquent water, sewer or municipal charges, or
(iv) delinquent ground rents relating to the Mortgaged Property.
(r) MORTGAGE PROVISIONS. The Mortgage contains provisions,
which, at the time of origination, were customary such as to render the rights
and remedies of the holder thereof adequate for foreclosure against the
Mortgaged Property and enforceable in accordance with their respective terms,
subject to bankruptcy, insolvency, reorganization, moratorium and other laws of
general application affecting the rights of creditors and to general principles
of equity, regardless of whether such enforcement is sought in a proceeding in
equity or at law.
(s) HAZARD AND OTHER INSURANCE. The Mortgage Property is
insured by an insurer that, to Seller's knowledge, is financially sound, against
loss by fire, hazards covered by extended coverage insurance and such other
hazards as are customary in the area in which the Mortgaged Property is located
pursuant to insurance policies conforming to normal industry standards and
applicable regulations and, if the Mortgaged Property is in an area identified
in the Federal Register by the Federal Emergency Management Agency as having
special flood hazards (and such flood insurance is required by federal
regulation and such flood insurance has been made available), a flood insurance
policy meeting the requirements of the current guidelines of the Federal
Insurance Administration. All of such insurance policies contain a standard
mortgagee clause naming Seller and its successors and assigns as mortgagee, and
all premiums thereon have been paid. The Mortgage obligates the Mortgagor
thereunder to maintain the hazard insurance policy at Mortgagor's cost and
expense, and on the Mortgagor's failure to do so, authorizes the holder of the
Mortgage to obtain and maintain such insurance at Mortgagor's cost and expense,
and to seek reimbursement therefor from the Mortgagor. Where required by
applicable state law or regulation, the Mortgagor has been given an opportunity
to choose the carrier of the required hazard insurance. To Seller's knowledge,
each insurance policy required hereunder is the valid and binding obligation of
the insurer and is in full force and effect, and will inure to the benefit of
Purchaser upon the consummation of the transactions contemplated by this
Agreement. Seller has not engaged in, and has no knowledge of any Mortgagor's
having engaged in, any act or omission that would impair the coverage of any
such policy, the benefits of the endorsement provided for herein, or the
validity and binding effect of either the policy or such endorsement, including,
without limitation, the receipt, retention or realization of any unlawful fee,
commission, kickback or other unlawful compensation or value of any kind by any
attorney, firm or other person or entity and no such unlawful items have been
received, retained or realized by Seller.
(t) TRUSTEE FOR DEEDS OF TRUST. As to each Mortgage that
constitutes a deed of trust, a trustee has been properly authorized, duly
qualified and appointed under applicable law to serve as such, currently so
serves and is named in such Mortgage; and no fees or expenses are or will become
payable by Purchaser to any such trustee, except in connection with a trustee's
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sale after default by the Mortgagor under such Mortgage. PROVIDED, HOWEVER, that
Purchaser acknowledges that, for most, if not all, of such Mortgages the entity
that serves in the capacity of trustee is closely affiliated with Seller such
that Purchaser will need to obtain a replacement trustee for such Mortgages on
the Servicing Transfer Date.
(u) SOLDIERS AND SAILORS CIVIL RELIEF ACT. The Mortgagor has
not notified Seller that the Mortgagor has requested, and Seller has no
knowledge that the Mortgagor has requested, any relief under the Soldiers and
Sailors Civil Relief Act of 1990.
(v) ENVIRONMENTAL COMPLIANCE. Seller has not received any
notice of any circumstance or condition with respect to the Mortgaged Property
that would the Mortgaged Property in violation of any applicable laws relating
to the protection of the environment or to hazardous substances or the
remediation of environmental problems; and, to Seller's knowledge, there is no
pending action or proceeding involving the Mortgaged Property in which
compliance with any environmental law, rule or regulation is an issue and Seller
is not aware of any basis for any such action or proceeding.
(w) LOCATION OF IMPROVEMENTS; NO ENCROACHMENTS. Except as
otherwise noted in the title insurance policy for such Mortgaged Property, at
the time that the Mortgage Loans were originated, all improvements that were
considered in determining the appraised value of the Mortgaged Property lay
wholly within the boundaries and building restriction lines of the Mortgaged
Property and no improvements on adjoining properties encroached upon the
Mortgaged Property.
SECTION 6.3 REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser
represents and warrants to Seller that on the date hereof and as of the Closing
Date:
(a) DUE ORGANIZATION AND AUTHORITY. Purchaser is a savings
association duly organized, validly existing, and in good standing under the
laws of the United States of America, Purchaser has the full corporate power and
authority to acquire the Mortgage Loans and to execute and deliver this
Agreement and to perform in accordance with such agreements. The execution,
delivery and performance of this Agreement by Purchaser and the consummation of
the transactions contemplated hereby have been duly and validly authorized by
all requisite corporate action. Assuming the due authorization, execution and
delivery of this Agreement by Seller, this Agreement and all agreements
contemplated hereby evidence the valid, legal and binding obligation of
Purchaser enforceable against it in accordance with their respective terms,
subject to bankruptcy, insolvency, reorganization, moratorium and other laws of
general application affecting the rights of creditors and to general principles
of equity, regardless of whether such enforcement is sought in a proceeding in
equity or at law.
(b) NO CONFLICTS. Neither the execution and delivery of this
Agreement by Purchaser, the acquisition of the Mortgage Loans by Purchaser, or
any other transactions contemplated hereby to be performed by Purchaser, nor the
fulfillment of or compliance with the terms and conditions of this Agreement by
Purchaser, will conflict with or result in a breach of any of the terms,
conditions or provisions of Purchaser's charter or by-laws or any legal
restriction or any agreement or instrument to which Purchaser is now a party or
by which it is bound, or constitute a default or result in an acceleration under
any of the foregoing, or result in the violation of any law, rule, regulation,
order, judgment or decree to which Purchaser, or its property is subject, or
result in the creation or imposition of any lien, charge or encumbrance with the
result that any of the foregoing would have a material adverse effect upon the
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financial condition of Purchaser or its ability to carry out the transactions
contemplated by this Agreement.
(c) NO LITIGATION PENDING. Except as disclosed by Purchaser in
writing to Seller, there is no action, suit, proceeding or investigation
pending, or to Purchaser's knowledge threatened, against Purchaser which, either
in any one instance or in the aggregate, would draw into question the validity
of this Agreement or of any action taken or to be taken in connection with the
obligations of Purchaser contemplated herein, or which would be likely to impair
materially the ability of Purchaser to perform under the terms of this
Agreement.
(d) NO CONSENT REQUIRED. Except as contemplated in the Branch
Sale Agreement, no consent, approval, authorization or order of, or registration
or filing with, or notice to any court or governmental agency or body, is
required for the execution, delivery and performance by Purchaser, of or
compliance by Purchaser with this Agreement or the purchase of the Mortgage
Loans or the consummation by Purchaser of the transactions contemplated by this
Agreement, or if required, such consent, approval, authorization, order,
registration or filing has been or will be obtained or made prior to the
required or applicable date.
(e) NO COMMISSIONS. Purchaser has not dealt with any person
that may be entitled to any commission or compensation from Purchaser or Seller
in connection with the execution and delivery of this Agreement.
SECTION 6.4 REPRESENTATIONS AND WARRANTIES RESPECTING THE LOAN
DOCUMENTS. Seller represents with respect to each Mortgage Loan, as of the date
hereof and as of the Closing Date:
(a) The Mortgage File with respect to the Mortgage Loan
contains all information and documents that are required to comply with
applicable regulations and other requirements of the Office of Thrift
Supervision governing Purchaser.
(b) Seller has delivered the necessary originals or copies of
the Loan and Collateral documents required by Section 4.2 to Purchaser in
accordance with the terms of Section 4.2.
SECTION 6.5 TERMINATION OF REPRESENTATIONS AND WARRANTIES. Each of the
representations and warranties in Sections 6.1 and 6.2 shall survive the
Closing. The representations and warranties in Section 6.1 shall terminate and
be of no further force or effect on the Survival Termination Date. The
representations and warranties in Section 6.2 as to a particular Mortgage Loan
shall terminate and be of no further force or effect on the occurrence of a
Termination Event relating to such Mortgage Loan. The representations and
warranties in Section 6.4 shall terminate and be of no further force or effect
thirty (30) days after the Servicing Transfer Date.
SECTION 6.6 KNOWLEDGE OR RELIANCE. For purposes of this Article VI:
(a) The term "to Seller's actual knowledge," or "to Seller's
knowledge" means that the officers of Seller having responsibility for the
origination, purchase or servicing of Mortgage Loans have no actual knowledge or
notice that such representation or warranty is inaccurate or incomplete, without
any independent investigation and have no knowledge of any facts or
circumstances that would render reliance thereon unjustified without further
inquiry.
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(b) The term "in reliance on," means that Seller has examined
and relied in whole or in part upon the certificate, report, opinion or other
referenced document; that the information contained in such document is
sufficient to support accurately and in all material respects the substance of
the applicable representation or warranty and that Seller is under no obligation
to independently verify the information contained in such document. It is
understood that Seller's reliance must be commercially reasonable and consistent
with the standard of care exercised by prudent lending institutions originating
residential mortgage loans.
SECTION 6.7 DEFECTS COVERED BY TITLE INSURANCE. Notwithstanding
anything to the contrary contained in this Agreement, Purchaser shall not be
entitled to deliver a Certificate of Defect for a Mortgage Loan to the extent
that Purchaser is entitled to assert a valid claim under either a title
insurance policy or any attorney's title certification with respect to the loss
caused by such breach, and in such event any such representation or warranty
shall be deemed not to have been made by Seller. Purchaser shall be deemed not
to have a valid claim under a title insurance policy or attorney's certification
if (i) in the case of a title insurance policy, the title insurer that issued
such policy has generally stopped paying valid claims under other title policies
issued by such company or (ii) in the case of any attorney's title
certification, the attorney who issues such certification is financially unable
to satisfy any claims under such attorney's title certification.
SECTION 6.8 THIRD PARTY REPORTS. Any appraisals, structural reports,
environmental site assessments or other third-party reports or expert opinions
that are included in the Due Diligence Materials or otherwise provided by Seller
to Purchaser have been prepared for Seller by the experts named therein and have
been furnished to Purchaser solely for Purchaser's convenience. No
representations, express or implied, are being made by Seller, or any of its
employees, with respect to the content, suitability for any purpose, accuracy,
truthfulness or completeness of any such reports. Any reliance upon such reports
shall be at the sole risk of Purchaser.
ARTICLE VII
ADDITIONAL COVENANTS OF PURCHASER AND SELLER
--------------------------------------------
SECTION 7.1 ADDITIONAL PURCHASER COVENANTS.
(a) CONFORMITY TO LAW. Through the Survival Termination Date,
Purchaser shall abide by all applicable state and federal laws, rules and
regulations regarding the preservation and maintenance of all documents and
records relating to the Mortgage Loans purchased hereunder, including the length
of time such documents and records are to be retained.
(b) INSPECTION BY SELLER. After the transfer of documents or
files to Purchaser pursuant to the terms of this Agreement, Purchaser agrees
that Seller, at Seller's sole expense, shall have the continuing right, at
reasonable intervals during normal business hours and for reasonable business
purposes, as set forth in writing to Purchaser, to use, inspect and make
extracts from or copies of any such documents or records transferred by Seller
to Purchaser, upon Seller's reasonable notice to Purchaser and at the offices of
Purchaser.
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(c) NOTICE OF LITIGATION. Purchaser shall promptly notify
Seller of any Claim or litigation asserted or filed, or threatened to be filed,
by any Person against Seller that arises from or relates to any of the Mortgage
Loans.
SECTION 7.2 ADDITIONAL SELLER COVENANTS.
(a) NOTICE OF LITIGATION. Seller shall promptly notify
Purchaser of any Claim or litigation asserted or filed, or threatened to be
filed, by any Person against Seller that arises from or relates to any of the
Mortgage Loans.
(b) CONVERSION TO PURCHASER'S DATA PROCESSING SYSTEM. Seller
shall cooperate with Purchaser and respond to reasonable requests of Purchaser
relating to the conversion of the Mortgage Loans onto the data processing system
of Purchaser; PROVIDED that Purchaser shall pay all direct expenses of such
conversion.
(c) ACCESS TO MICROFICHE FILES. Seller shall cooperate with
Purchaser and will promptly comply with Purchaser's reasonable requests for
access to microfiche copies of documentation relating to the Mortgage Loans.
ARTICLE VIII
MISCELLANEOUS
-------------
SECTION 8.1 MERGER OR CONSOLIDATION OF THE PARTIES. Any Person into
which either party may be merged or consolidated, or any corporation resulting
from any merger, conversion or consolidation to which either party shall be a
party, or any Person succeeding to the business of either party, shall be the
successor of such party hereunder, without the execution or filing of any paper
or any further act on the part of any of the parties hereto anything herein to
the contrary notwithstanding.
SECTION 8.2 NOTICES. All demands, notices and communications hereunder
shall be in writing and shall be deemed to have been duly given if (i) mailed by
first class mail; (ii) mailed by registered or certified mail, return receipt
requested; (iii) by facsimile transmission; (iv) by overnight courier or
messenger or by other generally accepted means, when received by the other party
at the address as follows:
(i) if to Seller:
FIDELITY FEDERAL BANK, A FEDERAL SAVINGS BANK
4565 Colorado Boulevard
Los Angeles, California 90039
Attention: Myron Mueller and Ron Alexander
With a copy to:
FIDELITY FEDERAL BANK, A FEDERAL SAVINGS BANK
4565 Colorado Boulevard
Los Angeles, California 90039
Attention: David E. Cher, Esq.
(ii) if to Purchaser:
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JACKSON FEDERAL BANK
599 North "E" Street
San Bernardino, California 92401
Attention: Robert Camerota
With a copy to:
JACKSON NATIONAL LIFE INSURANCE COMPANY
5901 Executive Drive
Lansing, Michigan 48901
Attention: General Counsel
or such other address as may hereafter be furnished to the other party by like
notice. Any such demand, notice or communication hereunder shall be deemed to
have been received on the date delivered to or received at the premises of the
addressee (as evidenced, in the case of registered or certified mail, by the
date noted on the return receipt).
SECTION 8.3 COUNTERPARTS. This Agreement may be executed simultaneously
in any number of counterparts. Each counterpart shall be deemed to be an
original, and all such counterparts shall constitute one and the same
instrument.
SECTION 8.4 GOVERNING LAW. The Agreement shall be construed in
accordance with the laws of the State of California and the obligations, rights
and remedies of the parties hereunder shall be determined in accordance with the
laws of the State of California.
SECTION 8.5 INTENTION OF THE PARTIES. It is the intention of the
parties that Purchaser is purchasing, and Seller is selling the Mortgage Loans
and not a debt instrument of Seller or another security. Accordingly, the
parties hereto each intend to treat the transaction for Federal income tax
purposes as a sale by Seller, and a purchase by Purchaser, of the Mortgage
Loans. Purchaser shall have the right to review the Mortgage Loans and the
related Mortgage Files to determine the characteristics of the Mortgage Loans
which shall affect the Federal income tax consequences of owning the Mortgage
Loans and Seller shall cooperate with all reasonable requests made by Purchaser
in the course of such review. It is the understanding and intention of the
parties that Purchaser is (i) purchasing the Mortgage Loan from Seller, and (ii)
not originating or funding the origination of such Mortgage Loan. Nothing
contained in this Agreement shall constitute Purchaser and Seller as members of
any partnership, joint venture, association, syndicate, unincorporated business
or other separate entity, shall be construed to impose any liability as such on
Purchaser or Seller, or shall constitute a general or limited agency or be
deemed to confer on Purchaser or Seller or any express, implied or apparent
authority to incur any obligation or liability on behalf of the other.
SECTION 8.6 SUCCESSORS AND ASSIGNS; ASSIGNMENT OF PURCHASE AGREEMENT.
This Agreement shall bind and inure to the benefit of and be enforceable by
Seller and Purchaser and the respective successors and assigns of Seller and
Purchaser. Neither this Agreement nor any right or obligation hereunder may be
assigned or delegated except with the prior written consent of the other party
hereto, which consent shall not unreasonably be withheld; PROVIDED, however,
that the foregoing shall nor prohibit or require consent of the other party for
an assignment by operation of law as a result of a merger or consolidation.
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SECTION 8.7 INTEGRATION; WAIVERS AND AMENDMENTS. This Agreement
supersedes all prior discussions and agreements between Seller and Purchaser
with respect to the purchase of the Mortgage Loans and other matters contained
herein. No term or provision of this Agreement may be amended, waived or
modified unless such amendment, waiver or modification is in writing and signed
by the party against whom such waiver or modification is sought to be enforced.
SECTION 8.8 EXHIBITS. The exhibits to this Agreement are hereby
incorporated and made a part hereof and are an integral part of this Agreement.
SECTION 8.9 GENERAL INTERPRETIVE PRINCIPLES. For purposes of this
Agreement, except as otherwise expressly provided or unless the context
otherwise requires:
(a) the terms defined in this Agreement have the meanings
assigned to them in this Agreement and include the plural as well as the
singular, and the use of any gender herein shall be deemed to include the other
gender;
(b) references herein to "Articles," "Paragraphs," and other
subdivisions without reference to a document are to designated Articles,
Paragraphs and other subdivisions of this Agreement;
(c) reference to a Paragraph without further reference to an
Article is a reference to such Paragraph as contained in the same Article in
which the reference appears, and this rule shall also apply to Paragraphs and
other subdivisions;
(d) the words "herein," "hereof," "hereunder" and other words
of similar import refer to this Agreement as a whole and not to any particular
provision; and
SECTION 8.10 PROTECTION OF CONFIDENTIAL INFORMATION.
(a) Purchaser shall keep all information obtained by it and
its officers, directors, employees, agents, attorneys, accountants or other
representatives concerning the business, properties and operations of Seller
confidential and Purchaser will use, and will cause its officers, directors,
employees, agents, attorneys, accountants or other representatives to use such
information only in connection with this Agreement and the transactions
contemplated thereby; provided that Purchaser shall be permitted to disclose
said information to the extent that disclosure thereof is required by court
order or by law.
(b) Purchaser and Seller shall keep confidential and shall not
divulge to any party, without the other party's prior written consent, the
purchase price paid by Purchaser for the Mortgage Loans and any information
pertaining to the Mortgage Loans or any Mortgagor thereunder, except to the
extent that it is appropriate for either party to do so in working with legal
counsel, auditors, taxing authorities or other governmental agencies in
connection with the Branch Sale Agreement and this Agreement.
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SECTION 8.11 ATTORNEYS' FEES. If any action is brought by either party
against the other, the prevailing party shall be entitled to recover from the
other party reasonable attorneys' fees paid or incurred in connection with such
action.
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IN WITNESS WHEREOF, Seller and Purchaser have caused their names to be
signed hereto by their respective officers thereunto duly authorized as of the
date first above written.
FIDELITY FEDERAL BANK, A FEDERAL SAVINGS
BANK, as Seller
By:
---------------------------------------------
Name:
Title:
JACKSON FEDERAL BANK, as Purchaser
By:
---------------------------------------------
Name:
Title:
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<PAGE>
EXHIBIT A
CERTIFICATE OF DEFECT
Pursuant to Article V of that certain Mortgage Loan Purchase Agreement
(the "AGREEMENT") by and between the undersigned as Purchaser and FIDELITY
FEDERAL BANK, A FEDERAL SAVINGS BANK as Seller, dated as of the 3rd day of
February 2000, the undersigned hereby certifies to Seller that the Mortgage Loan
identified on the Final/Initial Mortgage Loan Schedule as _________________ is a
Defective Mortgage Loan. All capitalized terms herein shall have the meanings
ascribed thereto in the Agreement.
Material breach of a representation or warranty under Sections 6.2.
-------------------------------------------------------------------
Subsection(s) claimed to be materially inaccurate:
Detailed description of condition(s) giving rise to the breach. If a
third party report is attached, cite the specific language in such
report that directly relates to the Subsection(s) claimed to be
materially inaccurate:
Evidence of material adverse effect on value of the Mortgage Loan:
Dated the day of 2000.
---- ---------------
PURCHASER
JACKSON FEDERAL BANK
By:
------------------------------
Name:
-------------------------
Title:
------------------------
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EXHIBIT B
SUBSTITUTION NOTICE
Pursuant to Section 5.5 of that certain Mortgage Loan Purchase
Agreement (the "Agreement") by and between JACKSON FEDERAL BANK, as Purchaser,
and FIDELITY FEDERAL BANK, A FEDERAL SAVINGS BANK, as Seller, dated as of the
3rd day of February, 2000, the undersigned certifies to Seller as follows:
1. Seller is effecting the substitution of a Substitute Mortgage Loan
for a Defective Mortgage Loan as set forth below.
2. The Substitute Mortgage Loans being substituted are those identified
as ______________.
3. The Repurchase Price for the Defective Mortgage Loans reference in
paragraph 2 of this Substitution Notice is $_________ [SET FORTH CALCULATION OF
REPURCHASE PRICE FOR EACH MORTGAGE LOAN].
4. _____% of the unpaid principal balance at this time plus accrued
interest for the Substitute Mortgage Loans being substituted is
$______________________.
5. The Substitution Adjustment is $_____________________ [THE
DIFFERENCE BETWEEN 3 AND 4 STATED AS NEGATIVE OR POSITIVE NUMBER]
SELLER
FIDELITY FEDERAL BANK, A FEDERAL
SAVINGS BANK
By:
------------------------------
Name:
-------------------------
Title:
------------------------
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EXHIBIT B
---------
GENERAL BILL OF SALE AND ASSIGNMENT AND ASSUMPTION
FOR VALUABLE CONSIDERATION, receipt of which is hereby acknowledged,
Fidelity Federal Bank, a Federal Savings Bank (the "Seller"), pursuant to the
Agreement to Purchase Assets and Assume Liabilities dated February 3, 2000 (the
"Agreement"), by and between Seller and JACKSON FEDERAL BANK, a federally
chartered savings bank (the "Buyer"), hereby sells, transfers, grants, delivers,
and assigns to Buyer all of the right, title and interest of Seller in and to
the Account Loans, Records, Safe Deposit Boxes, Cash on Hand and Fixed Assets
listed on Schedule 1 attached hereto and service and maintenance contracts
listed on Schedule 2 attached hereto ("Contracts"). Capitalized terms not
defined herein shall have the meanings assigned to them in the Agreement.
Seller represents and warrants to Buyer that it has good and marketable
title to each and all of the items and things sold, transferred and conveyed,
that it has the full right to transfer such good and marketable title to Buyer,
that each of such items and things now is, and upon delivery to Buyer will be,
free and clear of all security interests, and all other liens, Encumbrances and
adverse claims, and that Buyer will have peaceful possession and quiet enjoyment
thereof from and after the date hereof.
In furtherance of the foregoing, Seller hereby appoints Buyer, its
successors and assigns, the true and lawful attorney-in-fact of Seller with full
power of substitution, in the name of Seller but for the benefit and at the
expense of Buyer (1) to collect for the account of Buyer all items hereby sold,
transferred and assigned to Buyer and (2) to institute and prosecute all actions
or proceedings which Buyer may deem proper in order to collect, assert or
enforce any claim, right or title of any kind in or to the property hereby sold,
transferred and assigned, to defend or compromise any and all claims, acts,
writs or proceedings in respect to any of such property and to do all such other
acts and things in relation thereto as Buyer shall deem advisable. This power of
attorney is coupled with an interest.
Buyer assumes and agrees to pay the obligations and liabilities of the
Seller under the Contracts accruing on and after the Closing Date.
Seller shall indemnify, hold harmless and, at the option of Buyer,
defend Buyer from and against any and all claims, liabilities, damages, costs
and expenses (including, but not limited to, reasonable attorneys' fees, court
costs and litigation expenses) relating to any of the assets herein transferred
arising before or on the date hereof, or arising out of a violation of the
warranty of title hereinabove set forth.
Buyer shall indemnify, hold harmless and, at the option of Buyer,
defend Seller from and against any and all claims, liabilities, damages, costs
and expenses (including, but not limited to, reasonable attorneys' fees, court
costs and litigation expenses) relating to any of the assets herein transferred
arising after the date hereof, except any such claim, liability, cost or expense
caused by the gross negligence or willful act of Seller.
In the event of any conflict between the terms hereof and the terms of
the Agreement, the terms of the Agreement shall prevail.
A-28
<PAGE>
This Bill of Sale may be executed in one or more counterparts, all of
which taken together shall constitute one instrument.
IN WITNESS WHEREOF, Buyer and Seller have executed this Bill of Sale as
of ________________.
FIDELITY FEDERAL BANK, JACKSON FEDERAL BANK
A FEDERAL SAVINGS BANK
By:
By: --------------------------------
--------------------------------------- [Name]
James E. Stutz
President and Chief Operating Officer Its: [Title]
A-29
<PAGE>
EXHIBIT C
---------
ASSUMPTION OF DEPOSIT LIABILITIES
For value received, JACKSON FEDERAL BANK, a federally chartered savings
bank (the "Buyer"), executes and delivers this Assumption of Deposit Liabilities
(the "Assumption") to Fidelity Federal Bank, a Federal Savings Bank (the
"Seller"), in accordance with that certain Agreement to Purchase Assets and
Assume Liabilities dated February 3, 2000 by and between Seller and Buyer (the
"Agreement"). Capitalized terms as used in this Assumption have the meanings
assigned to them in the Agreement.
By its execution of this Assumption, Buyer assumes and agrees to pay
the Deposit liabilities of the Seller to the holders of Deposits domiciled at
the Seller's Branches for the amounts of such accounts or deposits, including
interest accrued thereon, as of the Closing Date, in accordance with the
Agreement and the terms of such Deposits in effect as of the Closing Date. Buyer
may administer such Deposit accounts acquired from Seller pursuant to Buyer's
own internal policies and procedures, and Buyer shall have no liability or
obligation to maintain in effect the policies and procedures of Seller governing
administration of the Deposit accounts before the Closing Date; provided,
however, that Buyer and not Seller shall be responsible for properly
implementing with affected customers any such changes in policies and procedures
governing administration of the Deposit accounts, and Buyer and not Seller shall
be liable for any damages, claims or losses, including costs and attorneys'
fees, resulting from any claims that such changes were improperly implemented.
Notwithstanding anything to the contrary contained in this Assumption
or in the Agreement, Buyer does not assume and shall have no liability for any
debts, liabilities, or obligations of Seller of any kind whatsoever except as
specifically set forth in this Assumption or the Agreement.
This Assumption will not create in any third party (including
account-holders) any rights or remedies against Buyer which such party did not
have against Seller prior to the execution and delivery of this Assumption with
respect to the liabilities and obligations specifically assumed hereby.
By its execution of this Assumption, Buyer acknowledges that it has
reviewed the Deposit liabilities described above, and agrees to assume those
liabilities upon the terms contained in this Assumption and in the Agreement.
In the event of any conflict between the terms hereof and the terms of
the Agreement, the terms of the Agreement shall prevail.
<PAGE>
This Assumption of Deposit Liabilities is executed to be effective as
of 11:59 p.m. on ________________.
JACKSON FEDERAL BANK
By:
-----------------------------
[Name]
Its: [Title]
B-2
<PAGE>
EXHIBIT D
---------
RETIREMENT ACCOUNTS
TRANSFER AGREEMENT
EXAMPLE ONLY
This Agreement (the "Transfer Agreement") is made between FIDELITY
FEDERAL BANK, A FEDERAL SAVINGS BANK, a federally chartered savings bank
("Seller") and JACKSON FEDERAL BANK, a federally chartered savings bank
("Buyer"). Capitalized terms not defined herein shall have the meanings assigned
to them in that certain Agreement to Purchase Assets and Assume Liabilities made
and entered into as of February 3, 2000 by and between Seller and Buyer (the
"Agreement"). Capitalized terms not otherwise defined herein shall have the
meanings ascribed to such terms in the Agreement.
RECITALS
--------
A. Seller has served as trustee with respect to certain Retirement
Accounts, sponsored by the Western League of Savings Institutions or its
predecessor (the "League") (collectively, the "Plans"), the funds of which are
domiciled at the Branches as defined in the Agreement.
B. Pursuant to the Agreement, Buyer is acquiring from Seller certain
Deposits, including Deposits holding funds of the Plans.
C. In connection with the acquisition of such Deposits, Buyer will
succeed to the trusteeship of the Plans and become successor trustee in the
place of Seller.
D. The Parties deem it necessary and advisable to execute this Transfer
Agreement in order to describe the terms of transfer of the Plans and the duties
and responsibilities of the Parties with regard thereto.
E. Execution of this Transfer Agreement is a condition to and an
element of the consideration for the execution by the Parties of the Agreement.
(continued on next page)
<PAGE>
Now, therefore, in consideration of premises stated above, the mutual
promises contained herein, and other good and valuable consideration, the
receipt and sufficiency of which the Parties hereby acknowledge, the Parties
hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 With respect to the sale of certain Assets and the assumption of
certain liabilities relating to the Branches, "resigning trustee" shall mean
Seller and "successor trustee" shall mean Buyer.
ARTICLE II
2.1 As of the Closing Date, or such other date and time as the Parties
may fix (the "Transfer Date"), the resigning trustee shall assign, transfer and
deliver to the successor trustee as set forth in the Agreement, funds and
Deposits, domiciled in resigning trustee's Branch. Furthermore, at least thirty
(30) days prior to the Closing Date, the resigning trustee shall request the
League to remove the resigning trustee as trustee of such Plans and appoint the
successor trustee effective as of the Closing Date.
2.2 Prior to the Transfer Date, the successor trustee shall notify
participants of each Plan acquired by successor trustee of the removal of the
resigning trustee as trustee and appointment of the successor trustee.
2.3 After the Transfer Date, the successor trustee shall not accept any
new plans naming the resigning trustee as trustee, nor shall the successor
trustee use any advertising, materials, plan documents, or any other printed
matter referring to the resigning trustee as trustee of any Retirement Accounts
sponsored by the League.
2.4 The resigning trustee shall prepare and file all required year-end
reports for all activity under the Plans transferred to successor trustee,
including, but not limited to, IRS form 1099R and IRS form 5498 for the portion
of the calendar year 2000 to and including the Transfer Date. The successor
trustee shall prepare and file such reports, where applicable, for the balance
of the calendar year 2000 and thereafter, so long as the successor trustee
remains as the trustee. It is further agreed that the resigning trustee and
successor trustee will each report their portion of withholding for such Plans
to the appropriate state and federal agencies.
2.5 In the event that the resigning trustee receives, after the
Transfer Date, any documents, correspondence or other written materials relating
to the Plans transferred to successor trustee, the resigning trustee will
forward such items to the successor trustee with a written explanation of such
items. The resigning trustee agrees to answer reasonable inquiries from the
successor trustee pertaining to the Plans or to any pending transaction or items
received after the Transfer Date.
2.6 Annual Transaction and Trustee fees for 2000 shall be collected by
the Seller provided that if the Closing occurs prior to the time which Seller in
the ordinary course would collect such fees such fees shall be collected by
Buyer. The successor trustee may assess any fees per Plan for 2001 and
thereafter pursuant to its own policies and procedures.
C-2
<PAGE>
2.7 On or before the Transfer Date, the resigning trustee shall deliver
to the successor trustee all original or legible certified copies of (i) all
documents executed by the depositors of the Plans to be transferred to successor
trustee, including, but not limited to, all adoption agreements, membership
agreements, plan amendments, and beneficiary forms, and (ii) all other records
and information necessary to allow the successor trustee to administer and
conduct business with respect to such Plans.
2.8 On or before the Transfer Date, the resigning trustee agrees to
provide the successor trustee with a complete and up-to-date listing of:
(a) any and all participants of the Plans transferred to
successor trustee that have reached age 70-1/2 by 2000, and prior year balances
required for calculations of mandatory distributions;
(b) any or all Plans at resigning trustee's Branch receiving
periodic distributions, the method of calculation for arriving at such amounts
distributed, and copies of the approved distribution forms:
(c) any and all Plans on the resigning trustee's system on
deposit at the Branches;
(d) any and all Plans at the resigning trustee's Branch
currently not exempted from either federal tax withholding or state tax
withholding, or both, and current filing status for each participant where
withholding may apply; and
(e) any and all Plans at resigning trustee's Branch where the
Plan participant has died and the date of death (if known) and a legible copy of
the death certificate when available.
2.9 The successor trustee agrees to indemnify and hold harmless the
resigning trustee, its Affiliates and successors from (i) any and all losses,
costs (including reasonable attorneys' fees), expenses, damages, liabilities or
penalties of every kind whatsoever that the resigning trustee, its Affiliates,
successors, directors, officers, employees, or agents may incur as a result of
the successor trustee's failure to perform its obligations under this Transfer
Agreement; and (ii) any penalties, taxes or other liabilities which might arise
in the event any act or omission by the successor trustee after the Transfer
Date results in disqualification of any Plan acquired from the resigning
trustee.
2.10 The resigning trustee agrees to indemnify and hold harmless the
successor trustee, its Affiliates and successors from any and all losses, costs
(including reasonable attorneys' fees), expenses, damages, liabilities, or
penalties that the successor trustee, its Affiliates, successors, directors,
officers, employees, or agents may incur as a result of any act, omission, or
breach of fiduciary obligation by the resigning trustee prior to the Transfer
Date of in fulfillment of its obligations under this Transfer Agreement.
2.11 After the Transfer Date, the successor trustee shall have no
further liability or obligation to the resigning trustee with respect to the
Plans transferred to the successor trustee, except as otherwise provided herein.
2.12 If any action or proceeding is brought by either Party against the
other pertaining to or arising out of this Transfer Agreement, the final
C-3
<PAGE>
prevailing Party shall be entitled to recover all costs and expenses, including
reasonable attorneys' fees, incurred on account of such action or proceeding.
2.13 This Transfer Agreement may be executed in any number of
counterparts, each of which shall be an original but all of which constitute one
and the same instrument.
2.14 Resigning trustee shall retain documentation of Plan activity
prior to the Transfer Date for a period required by law for normal retention,
and shall retain responsibility for answering reasonable, written inquiries from
the successor trustee pertaining to Plan activity prior to the Transfer Date,
including (but not limited to) information relating to account histories and
Plan distributions, transfers and contributions.
Prior to the Transfer Date, resigning trustee shall ensure that all
accounts at the Branches, if any, under Plans that also have accounts not held
at the Branches, are transferred.
Executed this day of , 2000
---- ------------------
FIDELITY FEDERAL BANK, JACKSON FEDERAL BANK
A Federal Savings Bank
By: ---------------------------------
[Name]
By: Its: [Title]
-------------------------------------
James E. Stutz
President and Chief Operating Officer
C-4
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
RECITALS .........................................................1
AGREEMENT .........................................................1
ARTICLE I .........................................................1
DEFINITIONS .........................................................1
ARTICLE II .........................................................5
TERMS OF PURCHASE AND ASSUMPTION...............................................5
2.1 Purchase and Sale of Assets..................................5
2.2 Purchase Price...............................................5
2.3 Assumption of Liabilities....................................5
Article III .........................................................7
INSPECTION OF ASSETS AND REAL ESTATE VALUATION.................................7
3.1 Valuation of Real Estate.....................................7
3.2 Due Diligence Review, Inventory and Inspection...............7
3.3 Other Documents..............................................8
ARTICLE IV .........................................................8
CLOSING .........................................................8
4.1 Closing......................................................8
4.2 Settlement...................................................8
4.3 Post-Closing Adjustments.....................................9
4.4 Deliveries at Closing........................................9
ARTICLE V .........................................................9
REPRESENTATIONS AND WARRANTIES OF BUYER........................................9
5.1 Organization.................................................9
5.2 Authority...................................................10
5.3 Compliance with Other Instruments and Law...................10
5.4 No Breach...................................................10
5.5 Litigation..................................................10
5.6 Governmental Notices........................................10
5.7 Regulatory Approvals........................................10
5.8 Consents....................................................10
ARTICLE VI ........................................................11
REPRESENTATIONS AND WARRANTIES OF SELLER......................................11
i
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
6.1 Organization................................................11
6.2 Authority...................................................11
6.3 Compliance with Other Instruments and Law...................11
6.4 No Breach...................................................11
6.5 Litigation..................................................11
6.6 Title to Assets.............................................11
6.7 TIN Certification...........................................12
6.8 Account Loan Enforceability.................................12
6.9 Safe Deposit Boxes..........................................12
6.10 Insurance...................................................12
6.11 Taxes.......................................................12
6.12 Records.....................................................12
6.13 Service and Maintenance Contracts...........................12
6.14 Regulatory Approvals........................................12
6.15 Consents....................................................12
6.16 Operation...................................................13
6.17 Condemnation................................................13
6.18 Hazardous Substances........................................13
6.19 Retirement Account Compliance...............................13
ARTICLE VII ........................................................13
COVENANTS OF BUYER ........................................................13
7.1 Assistance in Obtaining Regulatory Approvals................13
7.2 Performance of Liabilities..................................14
7.3 Consents and Notices........................................14
7.4 Further Assurances..........................................14
7.5 Confidentiality.............................................14
ARTICLE VIII ........................................................15
COVENANTS OF SELLER ........................................................15
8.1 Assistance in Obtaining Regulatory Approvals................15
8.2 Consents and Notices........................................15
8.3 Access to Records and Information; Personnel; Customers.....15
8.4 Conduct of Business Pending Closing.........................15
ii
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
8.5 Books and Records...........................................16
8.6 Insurance Policies..........................................17
8.7 Further Assurances..........................................17
8.8 Consents....................................................18
8.9 Operation of Branches.......................................18
8.10 Service and Maintenance Contracts...........................18
8.11 Repurchase of Certain Account Loans and Deposits............18
8.12 Signs.......................................................19
8.13 Cooperation.................................................19
8.14 Confidentiality.............................................19
8.15 Updating of Schedules.......................................19
ARTICLE IX ........................................................20
NON-COMPETITION ........................................................20
9.1 Solicitation................................................20
9.2 Non-Competition.............................................20
ARTICLE X ........................................................20
CONDITIONS TO CLOSING ........................................................20
10.1 Conditions to the Obligations of Buyer......................20
10.2 Conditions to the Obligations of Seller.....................22
TERMINATION ........................................................23
11.1 Conditions for Termination..................................23
11.2 Effect of Termination.......................................24
11.3 Termination Fee.............................................24
ARTICLE XII ........................................................25
EMPLOYEES ........................................................25
12.1 Employees...................................................25
12.2 Employee Benefits...........................................26
ARTICLE XIII ........................................................26
OTHER AGREEMENTS ........................................................26
13.1 Notices to Depositors.......................................26
13.2 Safe Deposit Boxes..........................................26
13.3 Incoming Deposits and Mail..................................27
iii
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
13.4 Returned Items..............................................27
13.5 ACH Items and Wire Transfers................................27
13.6 Checking Accounts...........................................28
13.7 Holds.......................................................28
13.8 Retirement Accounts.........................................29
13.9 Card Processing.............................................29
13.10 Data Processing Conversion..................................29
13.11 Interest Reporting..........................................30
13.12 Withholding.................................................30
13.13 Taxpayer Information........................................31
13.14 Seller's Cooperation........................................31
ARTICLE XIV ........................................................31
GENERAL PROVISIONS ........................................................31
14.1 Survival....................................................31
14.2 Indemnification.............................................32
14.3 Broker's Fees...............................................33
14.4 Publicity and Notices.......................................33
14.6 Attorneys' Fees.............................................34
14.7 Sales and Transfer Taxes....................................34
14.8 Notices.....................................................34
14.9 Arm's Length Transaction....................................35
14.10 Successors and Assigns......................................35
14.11 Third Party Beneficiaries...................................35
14.12 Governing Law; Venue........................................35
14.13 Arbitration.................................................35
14.14 Entire Agreement............................................36
14.15 Headings....................................................36
14.16 Severability................................................36
14.17 Waiver......................................................37
14.18 Number(s)...................................................37
14.19 Counterparts................................................37
14.20 Time is of the Essence......................................37
iv
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
14.21 Specific Performance and Lis Pendens........................37
Schedule 1.1 LIST OF BRANCHES
Exhibit A - MORTGAGE LOAN PURCHASE AGREEMENT
Exhibit B - GENERAL BILL OF SALE AND ASSIGNMENT AND ASSUMPTION
Exhibit C - ASSUMPTION OF DEPOSIT LIABILITIES
Exhibit D - RETIREMENT ACCOUNTS TRANSFER AGREEMENT
v
<PAGE>
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message.
EXHIBIT 11.
BANK PLUS CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE
(Dollars in thousands, except per common share data)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
(Loss) earnings available for common stockholders............ $ (24,890) $ (56,328) $ 12,653
============= ============= =============
Weighted average of common shares outstanding:
Basic.................................................... 19,460,941 19,395,337 18,794,887
Effect of dilutive securities-- stock options............ -- -- 348,152
Effect of dilutive securities-- deferred stock awards.... -- -- 194
------------- ------------- -------------
Diluted.................................................. 19,460,941 19,395,337 19,143,233
============= ============= =============
(Loss) earnings per share:
Basic.................................................... $ (1.28) $ (2.90) $ 0.67
Effect of dilutive securities-- stock options............ -- -- (0.01)
Effect of dilutive securities-- deferred stock awards.... -- -- --
------------- ------------- -------------
Diluted.................................................. $ (1.28) $ (2.90) $ 0.66
============= ============= =============
</TABLE>
EXHIBIT NO 12
BANK PLUS CORPORATION
COMPUTATION OF RATIO OF EARNINGS (LOSS) TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
<TABLE>
<CAPTION>
For the year ended December 31,
-------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------- ------------- ------------- ------------- -------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
(Loss) earnings from continuing operations
before income taxes......................... $ (24,862) $ (52,430) $ 8,788 $ (10,525) $ (68,975)
Add:
Interest on deposits........................ 113,155 145,020 126,717 120,265 128,242
Interest on borrowings...................... 30,818 64,185 47,292 32,358 46,594
One-third of rents........................ 1,230 1,230 870 990 930
------------- ------------- ------------- ------------- -------------
Earnings as adjusted (A)................ $ 120,341 $ 158,005 $ 183,667 $ 143,088 $ 106,791
============= ============= ============= ============= =============
Earnings as adjusted............................. $ 120,341 $ 158,005 $ 183,667 $ 143,088 $ 106,791
Less:
Interest on deposits........................ 113,155 145,020 126,717 120,265 128,242
------------- ------------- ------------- ------------- -------------
Adjusted earnings (loss) excluding
interest on deposits (B)............ $ 7,186 $ 12,985 $ 56,950 $ 22,823 $ (21,451)
============= ============= ============= ============= =============
Fixed Charges:
Interest on deposits........................ $ 113,155 $ 145,020 $ 126,717 $ 120,265 $ 128,242
Interest on borrowings...................... 30,818 64,185 47,292 32,358 46,594
One-third of rents.......................... 1,230 1,230 870 990 930
Dividends on preferred stock of
subsidiary.............................. 48 48 7,302 10,707 -
------------- ------------- ------------- ------------- -------------
Fixed charges (C)........................... $ 145,251 $ 210,483 $ 182,181 $ 164,320 $ 175,766
============= ============= ============= ============= =============
Fixed charges excluding interest
on deposits (D)......................... $ 32,096 $ 65,463 $ 55,464 $ 44,055 $ 47,524
============= ============= ============= ============= =============
Ratio of earnings to fixed charges (A) / (C)..... 0.83 0.75 1.01 0.87 0.61
============= ============= ============= ============= =============
Ratio of earnings (loss) to fixed charges
excluding interest on depostits (B) / (D)... 0.22 0.20 1.03 0.52 (0.45)
============= ============= ============= ============= =============
Amount of coverage deficiency.................... $ (24,910) $ (52,478) N/A $ (21,232) $ (68,975)
============= ============= ============= ============= =============
</TABLE>
EXHIBIT 21.1
SUBSIDIARIES OF BANK PLUS CORPORATION
Fidelity Federal Bank, A Federal Savings Bank
Gateway Investment Services, Inc.
SUBSIDIARIES OF FIDELITY FEDERAL BANK, F.S.B.
Chino Equities, Inc.
Citadel Service Corporation
Gateway Mortgage Corporation
Hancock Service Corporation
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-START> JAN-01-1999 OCT-01-1999
<PERIOD-END> DEC-31-1999 DEC-31-1999
<CASH> 74,403 0
<INT-BEARING-DEPOSITS> 15,138 0
<FED-FUNDS-SOLD> 0 0
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 320,233 0
<INVESTMENTS-CARRYING> 0 0
<INVESTMENTS-MARKET> 320,233 0
<LOANS> 2,229,659 0
<ALLOWANCE> 60,278 0
<TOTAL-ASSETS> 2,683,452 0
<DEPOSITS> 2,501,246 0
<SHORT-TERM> 20,000 0
<LIABILITIES-OTHER> 14,280 0
<LONG-TERM> 51,478 0
0 0
0 0
<COMMON> 195 0
<OTHER-SE> 272 0
<TOTAL-LIABILITIES-AND-EQUITY> 2,683,452 0
<INTEREST-LOAN> 212,455 46,924
<INTEREST-INVEST> 36,020 7,123
<INTEREST-OTHER> 2,216 451
<INTEREST-TOTAL> 250,691 54,498
<INTEREST-DEPOSIT> 113,156 26,532
<INTEREST-EXPENSE> 143,973 30,218
<INTEREST-INCOME-NET> 106,718 24,280
<LOAN-LOSSES> 78,800 16,500
<SECURITIES-GAINS> 0 0
<EXPENSE-OTHER> 102,168 24,456
<INCOME-PRETAX> (24,862)<F2> (8,846)<F1>
<INCOME-PRE-EXTRAORDINARY> (24,862) (8,846)
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (24,890) (8,853)
<EPS-BASIC> (1.28) (0.45)
<EPS-DILUTED> (1.28) (0.45)
<YIELD-ACTUAL> 3.36 3.56
<LOANS-NON> 6,945 0
<LOANS-PAST> 20,515 0
<LOANS-TROUBLED> 30,851 0
<LOANS-PROBLEM> 71,874 0
<ALLOWANCE-OPEN> 106,171 70,590
<CHARGE-OFFS> (131,295) (28,329)
<RECOVERIES> 5,100 1,517
<ALLOWANCE-CLOSE> 60,278 60,278
<ALLOWANCE-DOMESTIC> 60,278 60,278
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 56,376 56,376
<FN>
(1) Earnings before income taxes and $7 minority interest in subsidiary which
is included in (Expense-Other)
(2) Earnings before income taxes and $28 minority interest in subsidiary which
is included in (Expense-Other)
</FN>
</TABLE>
